Lipper Senior Research Analyst Don Cassidy on "Business for Breakfast" 1060 KRCN
Tuesday February 8, 2005
Q. Don, the market has been acting better lately, but we had a rocky startin January. What performance trends do you at Lipper see so far for 2005?A. You are exactly correct, and in fact each week has been better than theprior one, but we are still a bit in the hole for equity funds.
Q. Numbers, please?
A. As of the end of last week...year-to-date 2005...
S&P 500 DOWN 1.74%
Diversified:
Best Equity-Income Funds -0.76%
Multi-Cap Value -1.13%
Worst Multi-Cap Growth -3.36%
Large-Cap Growth -3.21%
Sectors:
Best Natural Resources +4.56%
Utility +1.42%
Worst Technology -6.90%
Gold -6.41%
Real Estate -5.98%
Worldwide:
Best Latin America +2.01%
Emerging Mkts +1.42%
Pacific Ex Japan +1.39%
Worst Japan -2.45%
China -2.71%
Q. OK, so do you see any general patterns in all of this?
A. Yes, somewhat. First, in a down market, it is not unusual to see twoparts of the market get hit worst:
- What is highly volatile (Technology, Gold)
- What had recently done very well (Real Estate)
The exception was Natural Resources, but of course with thecold snap, oil and gas prices shot up again, affecting those stocks.
Also, in a down market, generally Value does better than Growth.
Q. But the overseas markets seemed to do better than the USA market...
A. Right, and especially some of the volatile areas like Latin American andEmerging Markets. And it was not the dollar, which actually declined, whichwould hurt world-equity funds quoted here in US dollars. The other marketsjust decided to act better independently. That is part of our 2005 forecasttoo.
Q. Now, one of your recent favorites, Real Estate, is down near the bottomof the list so far.
A. I admit that. They were up an average of 30.2% last year. We saw apretty strong pattern of profit taking right after January 1 in the thingsthat had done best. It looked like a lot of people were waiting for thecalendar to turn, to lock down some profits and delay paying taxes a yearin the process. And I suspect that the weakness of the market in the first10 days made people with big gains pretty nervous, remembering how they gothurt in 2000 and after by holding on to big winners. And there wasyear-end talk of higher inflation and interest rates, which are viewed asnegatives for real estate funds.
Q. Are you still confident about real estate funds for all of 2005?
A. Yes I am. Unless rates go sky high or we go back into a recession, thefundamentals in rental real estate are good and improving; and people arevery tuned into yield. I guess if the stock market took off like a rocketmaybe people would move from Income to Growth, but we don't see thathappening either.
Q. There is quite a difference between Multi-Cap Growth and Multi-Cap Value(best and worst). Comment?
A. Well, generally in a down market the Value funds will do better becausetheir stocks pay higher dividends and are less volatile. And we thinkMulti-Cap is an interesting place to be this year, since we don't see a bigmove in the overall market. These managers have freedom to go where theywant rather than being stuck in one small box.
Q. How are all these recent mergers affecting funds?
A. Most of the companies named so far fell into Value or Core, so they helpthose portfolios most. Looking forward, we see 2005 as a year of mergersso it will be a stock-picker's type of market, and again that argues forMulti-Cap, in my view. We think phone companies and electric/gas and banksand some other industries will be most involved in mergers.
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Don Cassidy is a Senior Research Analyst at Lipper specializing in fund flows, exchange-traded funds, (ETFs), closed-end funds, equity fund performance, and author of Trading on Volume (McGraw-HIll).
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