The Market Springs Back on Eternal Hopes

Thanks to a healthy rate cut and the calming of technology jitters, equity funds mounted a comeback

After first-quarter storm showers, April saw the bloom come back to the market -- and a large number of mutual funds. Stock indices awoke from their funk, and tech shares stirred anew after weathering a brutal first quarter.

It seemed good news poured down on equity fund investors from every direction. Even with California utility PG&E declaring bankruptcy, and such tech biggies as Lucent Technologies and Motorola singing the blues, stocks seemed unstoppable, posting their biggest month in the past decade. Believing that the worst had befallen tech, investors began hoarding shares in the battered sector, lifting the Nasdaq a full 15% for the month.


 Federal Reserve Board Chairman Alan Greenspan chimed in with a half-point rate cut in the third week of the month.This adjustment -- his fourth of the year -- seemed to work in ways the others didn't. Heck, even tech bellwether Intel broadcast hints that its computer chips business might be doing better.

The mix of investor hopes and snippets of good news served to buoy equity indices across the board. The Standard & Poor's 500 ran off to a 7.8% gain and the Dow Industrials enjoyed an 8.8% boost in the month. At the same time, the market showed some favor for small- and mid-cap shares over the blue chips. S&P's Midcap 400 posted an 11% gain for the month, although the S&P Smallcap Index's 7.6% was just a tad off from the gain posted by the 500.

With investors now stampeding back into technology stocks, S&P's growth indices outdid their value counterparts. The S&P Barra Largecap Growth posted an 8.9% advance compared to the 6.8% put up by Largecap Value. Midcap Growth finished up 13.5% for April, compared to Midcap Value's 9.1% increase. Smallcap Growth outshone Smallcap Value, 9.7% to 6.0%.

BusinessWeek's fund performance numbers showed similar results. U.S. Equity funds finished the month with an average total return of 8.6%, according to our calculations. With a 6.2% average total return, International funds didn't quite match the domestic offerings, but had a good month nonetheless.

Technology funds topped all equity listings with an 18.6% average total return for the month. Another tech-heavy group, Communications funds, wasn't far behind, with a 13.9% average in April. Small-cap, Mid-cap and Large-cap Growth funds, many of which are steeped in technology shares, were big winners in April as well, reporting average total returns of 12.6%, 11.8% and 10.0% respectively.


  Goldbugs were aglitter, too, especially amidst worries that fuel prices would pump up inflation. Precious Metals funds, which invest in gold, were up 14.1% for the month, the second-best showing among BusinessWeek's Equity fund categories. Talk of rising gasoline and home heating prices also worked to lift Natural Resource funds to a 10.1% total return for the month.

Fed rate cuts benefited investors in overseas funds as well. World funds, the BusinessWeek group that invests in domestic and overseas markets, averaged a 7.3% return for April, while Foreign funds, the group concentrating on opportunities outside of the U.S., averaged a 6.4% return for the month.

Despite Greenspan's big rate cut, bonds backtracked during the month, giving way, it seems to the stampede back into stocks. The Lehman Brothers Aggregate Bond benchmark dropped 0.4% and the brokerage house's Muni Bond index slipped 1.1% during the same period. BusinessWeek's Bond Fund calculations were down as well with a 0.7% slide during the month.


  The hard-charging stock market helped launch Convertible funds to the top of BusinessWeek's ranking of fixed-income fund categories with a 6.4% average total return in April. Fixed-income groups invested in more traditional types of securities didn't fare as well. While short-term and ultra-short-term bond funds averaged total returns of between 0.0% and 0.3% for April, most other categories dropped during the month. Intermediate-term and Long-term California Municipal Bond funds finished at the bottom of our listings with 1.5% and 2.0% retreats respectively, as uncertainty over the state's energy crisis mounted throughout April.

Two portfolios managed by Berkshire Capital Holdings, a San Jose money management firm, topped BusinessWeek's April equity list with a 40.4% total return for the month. Despite an incredible month, the Berkshire Focus Fund (BFOCX ), a fund with large stakes in tech holdings such as EMC (EMC ), Juniper Net (JNPR ) and Applied Micro Circuits (AMCC ), is off 46.0% for the year and -63.2% over the last 12 months. Its cousin, the Berkshire Technology Fund (BTECX ), holds many of the same stocks and as a result has followed tech's recent peaks and troughs. Despite a shining April, it is down 45.6% so far in 2001 and is off 63.0% over the last 12 months.

The top fund from BusinessWeek's Equity Fund A-list was the Wasatch Core Growth Fund (WGROX ), a small-cap blend fund that posted a 14.4% climb in April. Wasatch Core is now up 15.4% year-to-date in 2001 and 52.9% over the last 12 months. Second-place among A-list funds for April went to the Muhlenkamp Fund (MUHLX ), with a 13.5% showing. The fund ended April up 10.0% for the year and up 23.1% over the last 12 months.


  April's No. 1 performer was Monterey Murphy New World Tech Convertibles (MNWCX ), a convertible fund with large stakes in tech securities, with a 17.1% total return. But the Monterey Fund is up just 2.2% in 2001. Ariston Convertible Securities (CNCVX), another tech-heavy convertible fund, took second place in April with a 16.6% showing. The fund has had rougher going year-to-date, however, with a -16.1% total return.

Among BusinessWeek's A-list bond funds, top honors for April went to two short-duration bond funds. Dreyfus Short-Term Income (DSTIX ) and Payden Limited Maturity R (PYLMX ) both posted a 0.6% total return for the month. At the end of April, the Dreyfus fund was up 3.7%, while the Payden fund had recorded a 2.7% total return for the month.

At the end of April, nine funds made their way onto BusinessWeek's A-List of top-ranked funds including several growth funds that took advantage of a strong month for that type of investing. Nine portfolios were downgraded,including a couple of international funds. Among bond funds, six portfolios were welcomed into the A-list rankings, and an equal number was removed.

James A. Anderson

Equity Fund A List Upgrades

Atlas Assets Global Growth A

Evergreen Utility & Telecomm A


ICAP Discretionary Equity

ICAP Equity

J Hancock Large Cap Value A

State Street Research Strat Income Plus S

Van Kampen Growth & Income A

Whitehall Growth Svc

Equity Fund A List Downgrades

Artisan International

Eaton Vance Growth & Inc A

Evergreen Capital Growth A

Fidelity Low Priced Stock

Julius Baer International Equity A

Matthew 25

Salomon Brothers Capital O

Sound Shore

US Global Leaders Growth

Fixed Income Fund A List Upgrades

AIM Ltd Mat Treasury Ret

American High-Income Muni Bd A

Bernstein Short Dur NY Muni

Federated US Govt Sec 1-3 Yrs Instl

Fidelity Spartan NJ Muni Inc

Marshall Short Term Income Inv

Fixed Income Fund A List Downgrades


CUFUND ShTm Maturity

Franklin CA Int Term Tax Free A

Mercury Short Term Investment I

Payden Global Fixed Income R

Thornburg FL Intm Muni A

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