March: A Real DownerJames A. Anderson
The good news for equity mutual-fund investors: Mar. 31 marked not only the end of the month, but the first quarter as well. The bad news: Virtually all sectors of the market got pounded during both the month and the quarter.
More and more pundits weighed in to say the current slowdown looks like a recession. The number of companies to leak news of flat or disappointing profits grew -- with Intel, Oracle, and Cisco Systems among the list of tech giants to confess things are looking glum. Even another rate cut by Federal Reserve Chairman Alan Greenspan failed to reverse a downhill ride for stocks.
You couldn't find a single index for any market segment that managed to eke out a gain in March. The S&P 500 slumped 6.4% to close the first quarter off 11.8%. The venerable Dow Jones industrial average sagged 5.8% and finished the first three months of 2001 down 8%. And of course, there was the beleaguered Nasdaq, whose 14.5% tumble in March brought the tech-heavy index's 2001 drop to 25.5% so far, and an amazing 59.8% slide over the previous 12 months.
The S&P Barra Growth index fell 9.0% in March and was down 17.4% year-to-date at the end of the month. The corresponding Large-Cap Value benchmark was down 4.0% last month and finished the first quarter 6.5% in the red. S&P/Barra's Midcap and Smallcap Growth were down 10.8% and 5.2% respectively during the month and have backtracked 18.4% and 13.2% so far in 2001. Midcap and Smallcap Value did marginally better; Midcap Value slid 4.4% in March and is off 3.5% for the first quarter. Smallcap Value dropped 5.4% last month, yet has managed a 0.5% gain for the first quarter.
A bearish backdrop meant mutual-fund investors were in for their share of the bruises. Not one of BusinessWeek's 29 equity-fund categories logged a positive total return in March or for the first quarter. U.S. funds averaged a -6.8% total return last month and a -12.4 tally for the first quarter. International funds did worse for the month -- down 7.7% -- but slightly better in the first quarter, with a -11.8% return.
Both the Communications and Technology funds categories took the brunt of the bear's wrath. Communications funds were down 14.4% last month and shed 25.7% of their value in the first quarter. Tech funds fell 16% in March and 31.6% in the first quarter. Real-estate funds led our equity groupings with a 0.6% decrease on average in March, followed by Japan funds, which fell 1.3%. Small-cap value investors faired the best in the three months of 2001 with a -0.3% average total return. Real-estate funds finished second in the quarter by posting a -0.9% return.
Bond investors, meanwhile, had reason to cheer both March and the first quarter. Interest rates continued to fall and expectations that a slowing economy might again force the Federal Reserve to ease credit also helped. Fixed-income benchmarks finished both periods up: The Lehman Brothers Aggregate gained 0.5% in March and ended the first quarter with a 3.0% total return. Lehman Brothers' Municipal Bond index rose 0.9% in value during March and 2.2% in the first quarter.
The top-ranking BusinessWeek bond fund categories for March were Intermediate-term New York Munis and National Long-Duration Muni Bond funds, which both posted total returns of 0.9% for the month. March's rotten equity markets didn't help funds in our Convertibles or High-Yield categories, however. Convertible funds, whose fortunes ride on the ups and downs of stocks, averaged a -3.8% total return in March and are down 7.4% year-to-date.
The same worries over a possible recession that haunted stocks ganged up on junk bonds, too. High-yield funds fell an average 2.6% in the month, although a strong January and February helped the group record a 4% total return in the first quarter, putting it in first place among fixed-income fund categories. Second position in bond fund groups went to General Long-term Funds, which ended the quarter up 3.3%.
BusinessWeek's equity-fund data shows short funds -- a group that has been perched atop our tallies in recent memory -- enjoyed another spectacular month. ProFunds UltraShort OTC (USPIX ), a fund that takes a bearish view of the Nasdaq, topped our list with a 32% total return for March. Year-to-date, the same fund is up 52.9%. Rydex Dynamic Venture 100 (RYVNX ), an offering that looks to capitalize on plummeting tech shares, took second place for the month, with a 31.6% total return. The Rydex fund has garnered a 54.4% gain for investors so far in 2001.
With energy prices and crises on everyone's mind from California eastward, utility and natural-resource funds turned in the top total returns for March among BusinessWeek's A-List. First place went to AXP Utilities Income (INUTX ), a fund that had a 1.2% increase for March. As of Mar. 31, the fund was down 6.3% for 2001. Alliance Bernstein Utility Income was second, with a 1.0% total return last month, although the same fund posted a -2.7% for the first quarter.
While concerns over default rates might have sabotaged high-yield bond funds in general during March, two portfolios from the group led BusinessWeek's fixed-income rolls. Buffalo High Yield (BUFHX ) was up 2.1% for the month and 7.8% year-to-date. Morgan Keegan High Income Bond (MKHIX ) was 2.0% for March and 6.3% for the first quarter.
Among A-list bond funds, SM&R Capital Primary (SMRPX ), a short-term general bond fund, which finished highest with a 1.4% total return in March. The fund is up 2.3% so far in 2001. Next in line was a muni fund, Dupree Kentucky Tax-Free Short-Medium Duration (KYSMX ) with 1.3% gain in March. As of Mar. 31, the fund was up 2.2% for the year.
Despite a rocky March, 17 equity funds made it onto BusinessWeek's A list of top-ranked funds including several utility and value-stock portfolios. Fourteen portfolios -- many of which lean toward growth and tech stocks -- dropped off the list. Six bond funds joined the A squad, while six were downgraded at the end of March.
Equity Fund A List Upgrades
AXP Utilities Income A
Alliance Growth & Income B
Amer Century Utilities Inv
American Balanced A
Eaton Vance Growth & Inc A
Fidelity Advisor Mid Cap T
Fidelity Low Priced Stock
Investment Company of America A
MFS Total Return A
Mutual Qualified Z
Salomon Brothers Opportunity
Strong American Utilities
Third Avenue Value
Van Kampen Utility A
Equity Fund A List Downgrades
ARK Capital Growth Retail A
Amer Century Intl Disc Inv
Berger Small Cap Value Instl
Gabelli Global Telecommunications AAA
Janus Aspen International Growth Instl
Janus Aspen Worldwide Growth Instl
Massachusetts Investors Growth Stk A
Oppenheimer Global Growth & Income A
Pilgrim International Small Cap Growth A
Putnam International Voyager A
Royce Low Priced Stock
Salomon Brothers Investors Value O
Fixed Income Fund A List Upgrades
Alliance Muni Income AZ A
Galaxy ShTm Bd Trust
Glenmede NJ Muni
Homestead Short Term Govt Sec
Payden Short Bond R
T Rowe Price Summit Muni Intm
Fixed Income Fund A List Downgrades
Bernstein Short Dur NY Muni
Managers Short Duration Govt
Merrill Lynch Short Term US Govt B
Sit US Government Securities
Smith Barney Adj Rate Govt Inc A
James A. Anderson
Edited by Patricia O'Connell
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