Lipper Research Senior Analyst Don Cassidy on "Business for Breakfast" 1060 KRCN - How Friday Treated Funds Investors

A. Right, it was like a huge air pocket. And yet, fortunately, on Mondaystocks acted like nothing had happened.

Q. So, what kinds of funds did what, on Friday?

A. Natural Resources funds were the only type of equity funds that rose. Ofcourse, the big jump in oil prices-partly on the Iran jitters-was one ofthe main drivers for the overall drop.

Q. What was down the most, and what were the patterns you saw?

A. I should start by saying that watching mutual funds daily is not a goodpractice for most investors. They will get overly excited on great days andoverly scared on nasty days and may buy or sell at the worst possibletimes.

Benchmarks:

• S&P 500 Index funds -1.83%
• Lipper 1000 index -1.57%

Following were the worst to the best:

• Science & Tech Funds -2.82%
• Japan Funds -2.43
• Multi-Cap Growth -2.30
• Multi-Cap Core -1.49
• Multi-Cap Value -1.44
• Real Estate Funds -1.00
• Balanced -0.97
• Utility -0.69
• Gold -0.50
• Europe -0.48
• Convertible Securities -0.46

Q. So, it looks like the more-aggressive parts of the market took the worsthits, right?

A. Definitely. But one exception was on the large-/small-cap axis.

Q. How so?

A. It was a very unusual circumstance, in that normally on a bad day in themarket you get a retreat to perceived safety; thus, the large-cap stocksand that kind of funds would normally do better. This time it was thesmall-caps, depending on what style you look at, small-cap funds beat large(had smaller losses) by between 35 basis points and 65 basis points for theday.

	Value	Core	Growth
Large	-1.54%	-1.75%	-2.08%
Multi	-1.44	-1.49	-2.30
Mid	-1.19	-1.29	-1.50
Small	-1.21	-1.14	-1.38

Q. What were the special circumstances that drove this, then?

A. The largest losses seemed to be in big-name stocks, whether they werevalue or growth. Some quarterly reports from the semiconductors area likeIntel and reports from Citibank and GE seemed to disappoint the analysts,so those large-cap stocks were hit. Google had an especially bad day, andits value dropped $20 billion or so, which is the whole market cap ofYahoo!.

Q. And the more-conservative kinds of funds, like REITs, utility, andconvertibles, had much smaller losses?

A. Exactly. The bond market was up roughly a quarter of 1% at the long end,so income-oriented investments and their funds held up nicely. Balanced andconvertibles funds have that type of cushion built into them.

Q. Now that Friday's dust has cleared, how are funds stacking up for theyear to date?

A. Three weeks is not exactly a long-term perspective, but the patternsseem a lot like the early-2005 numbers, before small started lagging.

	Value	Core	Growth
Large	+1.18%	+1.17	+1.01
Multi	1.42	1.66	2.29
Mid	2.39	2.47	3.50
Small	3.48	3.68	4.10
S&P 500	+1.13%
Balanced	+1.29
Dow Jones	- 0.34

Generally, except in large-cap, growth is leading value, which is thepattern we are looking for in 2006. Of course, a market that is up (Lipper1000 is up 2.13%) does help. And funds in general are doing better than theS&P 500, again because large is lagging a little.

Q. How about some sectors and regions, year to date?

A. Data based on Lipper Indices through Friday January 20.

• Natural Resources funds +11.8%
• Gold + 9.6
• Emerging Markets + 6.6
• European + 4.5 helped by falling US$
• Utility + 3.9
• Real Estate + 3.6
• Sci & Tech + 3.1
• Health/Biotech + 1.8
• Financial Services + 0.2
• Japan-the only loser - 1.8

Q. So.what do you make of all this?

A. A few things, mainly on a big-picture level.

1. The ability of the market to steady itself Monday with no basicchange in the economic or international news is very encouraging. It seemsto say the market still "wants" to go up rather than down.

2. The emotional upset investors could get from having all their moneyin one type of funds, or all in aggressive types, came to the fore onFriday. A day like that is yet another reason a policy of well-planneddiversification is a good idea for almost any investor.

3. While the one-day numbers certainly make headlines, investors shouldkeep their lifetime investment strategies in mind and try not to focus ondramatic one-day events, whether they are positive or negative.

4. Unless you are a really good contrarian timer, watching theshort-term tends will over-excite you and you will tend to buy high andsell low. Mutual funds are not made for daily watching or trading. Tradersmight do better to look at ETFs than at funds.

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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).