Lipper Research Analyst Don Cassidy on "Business for Breakfast" 1060 KRCN - With The Dust Clearing
Q. Don, the dust seems to have cleared a little after the recent sharpdrop. What has happened to mutual funds investors?A. Needless to say, May has been painful, but fortunately about 7 out of 8equity funds still have gains for the year to date.
Q. Which types of funds took the worst poundings?
A. Well, from the day before the Fed's last meeting, roughly the market topat that point, thru last week, here are the numbers...
- Gold Funds: -15.3%
- Emerging Mkts: -14.4
- Latin American Regn: -14.0
- Intl Small/Mid Growth: -11.5
- Pacific ex Japan: -11.2
- Small-Cap: -10.8
- Pacific Region: -10.3
- Natural Resources: -10.0
Q. Wow, some heavy hits there in just a couple of weeks!A. Definitely. And the pattern was quite clear: parts of the markets wherepeople had the biggest recent gains are where the selling was heaviest.Pretty much everything sold off, but the intensity was where the gainswere.
Q. Why do you think that was so?
A. I believe it is a combination of 3 things...
- people are very skittish about letting gains get awaybecause of their memories of the tech bubble "unwinding" (a kinddescription!)
- some of the hot commodities areas have hedge fundsinvolved, and they sold and some also then went short.
- people tend to take gains rather than losses to raise cash.
Q. So then, what kinds of funds held up the best in the downdraft?A. Not exactly the stuff that has been running away to begin with...again,since May 10...
- High yield bond: -0.8%
- Income Funds: -1.8
- Balanced Funds: -3.1
- Utility Funds: -3.2
- Convertible Sec's Fds: -3.3
Q. So while the idea of higher interest rates probably triggered theselling, income-type funds took the smallest hits! A. Exactly. And the year-to date leader-board has shifted little... withthe S&P 500 as a benchmark up about 2.5% still. Just the scores are not asgood...
Q. Details?
A. Sure.
- Gold Funds: +21.6%
- China Region Funds: +20.4
- European Region: +12.9
- Lat American Region: +11.5
- Nat Resources: +11.3
- Real Estate Funds: + 7.3
- World Equity: +9.1
- Domestic Equity: +3.3
- Domestic Bond: +0.2
- World Bond: +2.0
Q. That's interesting, that Europe funds are now stronger than LatinAmerican ones.A. Right. The Latin funds, like all the emerging markets ones, are veryvolatile (and tend to correlate fairly highly with the domestic market!).The European funds also have the big advantage of the Euro against thedollar. The greenback has fallen about 7.5% since Dec 31., which helpsfund returns in Europe funds for US investors.
Q. How about large against smallcap funds, and growth vs value?
A. Well, it was looking like growth might be taking the lead, UNTIL thedrop.
| TYD net returns, in % |
| | Value | Core | Growth |
| Large | 4.4 | 1.8 | -1.8 |
| Multi | 4.4 | 2.7 | 0.4 |
| Mid | 4.6 | 3.8 | 3.1 |
| Small | 7.8 | 7.5 | 6.1 |
Q. So value is definitely holding the lead.
A. Right, which is not unusual in a market that's jittery. But thesurprise is that smallcap has been able to hold on in that same climate.
Q. What about our old friends the Technology funds?
A. After losing almost 8% in the last few weeks, they are virtually flatYTD: +0.2% per their Lipper Index. They were the one NON big-winner thatalso got hit hard. NASDAQ is near its lows for more than 6 months.
Q. Is there anything in equity funds that is actually DOWN for the year?
A. Only 3 types: Health and Biotechnology funds are off 4%, Largecap Growth(above) 1.8%, and Japan funds 0.2%. Overall, some 86.7% of equity fundsare still up for 2006 to date. So while the recent pain is fresh, peopleare still up a little (3.95% dollar weighted). And about 5 of every 8funds (62.8%) are ahead of the S&P 500.
Q. What do you make of all this?
A. Well, personally I believe that when people can get more than 5% in CDsand about 4.7% in money funds, stocks can face some challenges. The economyis still OK, so maybe people should expect some churn from stocks in themonths ahead. The recent drop certainly reminded us all of the case fordiversification rather than chasing the hot stuff with all of one's money!
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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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