Lipper Research Senior Analyst Don Cassidy on "Business for Breakfast" 1060 KRCN Tuesday - Third Quarter Performance
Tuesday, October 4, 2005
Q. Don, we're at the three-quarter point in 2005. Coming into the backstretch, can we talk about the funds' performance situation?A. Sure. Things are pretty much in line with Lipper's outlook back at theturn of the year: bond funds on average are just slightly less than earningtheir coupons after expenses. Equity funds are up 6.3% on average, whichwas at the upper end of our range of muted expectations for the full year.
Q. What have been the best-performing funds types so far in 2005?
A. Here are some leaders (and a couple of laggards)
| Fund Classification | Domestic | World |
| Latin American | | +45% |
| Natural Resources | +42% | |
| Emerging Markets | | +24% |
| Utility | +19% | |
| Pacific Ex Japan | | +18% |
| International Small/Mid Growth | | +18% |
| Gold | +14% | |
| Japan | | +13%+ (after up +19%+ in Q3) |
| Europe | | +9% (weakening dollar |
helps)| Real Estate | +9% | |
| Health/Biotech | | +7% |
| Midcap Core | +7% | |
| Midcap Value | +7% | |
| Reference: S&P 500: | +2.36% |
| Laggards: |
| Science & Technology | | +1.0% |
| Financial Services | -0.7% | |
| China | | +7% (vs avg world eq fund +12%) |
Q. So, what patterns do you see there?
A. Two themes emerge pretty strongly in my view of the numbers: Investoutside the USA (many of the big winner leaders are world equity). Andprotect against inflation (natural resources, gold, plus invest outsidethe depreciating dollar)
Q. What have been the surprises, to you?
A. Gold doing so well (we underestimated the degree of rise in oil and thathelps gold and hurts the dollar, which helps gold too). And Japan doing sowell. Commentators think the deflation there is ending. So it may beanother (slight) inflation play.
Q. So, are funds investors pretty happy campers after what's happened sofar in 2005?
A. Unfortunately, probably not! The leading world-equity categories in thelist we discussed have a total of just $190 billion of assets, and that isonly 4.5% of assets in stock funds. People tend to be under-represented inworld markets. Aggressive investors have had a good year, assuming theypicked the inflation theme rather than assuming a strong market and buyingtechnology. The five kinds of stock funds with the most assets, making up43% of the assets, are up an average of just 3.4%. Goes a long way toexplaining why no one is exactly "excited" about investing lately.
Q. And what about conservative investors?
A. Well, if they are heavily into bond funds (+1.4%) they're behind aftertaxes and inflation. Value diversified funds have actually lagged growthfunds by 1 or 2%, so they would also be disappointed there. And real estateand utility funds have done above average, as we expected, so those arehappy places. But those two types represent only 1.7% of stock-fund assets.And the natural resources funds now are only 0.9%. So people have beenpredominantly in the kinds of funds that have done fairly little.
Q. Is there good news?
A. Yes, at least the market is up rather than down (in the face of someheavy news headwinds, I might add). Only 2 of the 67 types of equity fundswe follow are down.
Q. What is the lesson here?
A. Stay diversified so you catch some of the winner types. But be willingto make changes when you see macro trends developing. I think, for example,that rising energy and other commodity prices were fairly easy to spot sometime back.
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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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