A Bit of a Fall Blossom
Growth funds got going last month as investors saw major comebacks for the same tech portfolios that have spent much of 2001 adrift. Bond-fund investors benefited from an expected rate cut, which the Federal Reserve Board came through with in early November, and a surprise move from the Treasury Dept. to eliminate the 30-year bond.
The October rally happened in spite of a plethora of bad earnings, lowered expectations, and sour projections for the fourth quarter. Factor in the war in Afghanistan and the domestic terror threat, and October looks like a very good month indeed. The Standard & Poor's 500-stock index recorded a 1.9% return for the month, and the Dow showed a 2.7% gain. Most impressive was the Nasdaq's 12.7% return for the month, fueled by the comeback by tech stocks.
Technology funds averaged a rousing 16.2% total return during October (see Mutual Fund Scoreboard). Still, the rally did little to help the sector's numbers for 2001 -- as of Oct. 31, the category was down 44.2% for the year. Tech-heavy small-cap growth funds zipped to a 7.6% gain in the month but nevertheless were down 24.1% for the year. Natural-resource funds posted a 7.1% gain for October, a very good showing but not enough to wipe away the group's negative 15% total return year-to-date.
Mid-cap growth funds posted a 6.1% average total return, while mid-cap blend funds and mid-cap value managed a bit less, with 3.8% and 2.3% gains, respectively. Large-cap growth turned in a 4.1% tally for October, while large-cap blend and value funds finished with more modest returns of 2.2% and 1% each, respectively.
Overseas investors got a nice boost, too. BusinessWeek data show funds investing around the globe finished the month with an average 3.5% total return. Portfolios focusing on Pacific Rim nations excluding Japan did the best out of our overseas groups, with a 6.4% total return. Emerging-markets funds were strong as well, posting a 6% average return in October. Europe funds didn't match those gains, logging a 3.4% return for the month, while funds investing in a troubled Japanese economy managed a 3.2% return for investors.
As great as October's numbers were for tech and growth funds, the month was rather hard on some of the market's traditional storm shelters. Real-estate funds, strong for most of 2001, were hit the hardest of all equity categories, with a -2.9% total return in October. The turnaround came as concerns over a slowing economy hit stocks in the group.
SAPPING POWER PRODUCERS.
Also, golddiggers saw a negative number for the first time in recent months as precious-metal funds posted a -2% total return. World panic has nevertheless managed to keep the glitter in gold funds, which are up an average of 14% year-to-date. Headline after headline spotlighting a slowing economy hurt the stocks of power producers and sent utility funds to a average -2% total return in October, capping a negative 22.3% fall for 2001 so far.
With tech funds on a roll, it comes as no surprise that one of the group's members -- Berkshire Technology (BTECX ) -- led all equity funds with a thundering 37.2% total return last month. The fund carries generous positions in computer and computer-storage shares, but it hasn't managed to dodge the tech sector's woes for most of 2001. Berkshire Tech closed a banner October with a -75.3% total return to show for the year so far.
A tech fund led our equity A-list funds last month as well. The North Track PSE Tech 100 Index Fund (PPTIX ) ended October with a 15.7% total return for the month, helping to whittle down its losses for the year so far to 27.1%. The fund buys shares listed on the Pacific Stock Exchange Technology index and is typically steeped in chip, computer, and software shares, although it does hold a large weighting in biotech as well.
October was also a good month for bond-fund investors. Not only did they benefit from the Federal Reserve Board's ninth rate cut this year but they also got a nice boost as well from the Treasury's unexpected decision on Oct. 31 to stop issuing 30-year bonds. That sent bond prices surging, lifting almost every segment of the group. The Lehman Aggregate index posted a 2.1% total return in October, finishing up 10.7% for the year so far.
BusinessWeek's rolls show bond funds up an average of 1.5% for October. First place on our lists went to convertible funds, which parlayed a strong stock-market showing into a 3.4% total return in October. Long government funds tied that mark with a 3.4% gain, too. Junk-bond funds thwarted worries over possible defaults in the months ahead by posting a 2.3% climb.
American Century Target Maturity 2030, a fund investing in long-term Treasury strips, took a leap in value the minute Treasury shut down its 30-year offering, jumping 6.7% on Oct. 31.
Last month, the honors of the best performer among our fixed-income A-list went to Sit US Government Securities (SNGVX ), a fund that invests in short-term government paper and Washington-backed mortgages. The fund managed a 1.6% total return for the month and had provided investors a 9.3% boost in 2001 as of Oct. 31.
The month's results lifted 21 new funds onto the BusinessWeek Equity A-list of high return, low-risk funds, including a number of growth and small- and mid-cap portfolios. A total of 19 funds were downgraded with a number of utility and balanced funds falling from our A-list. Turnover on our Fixed-Income A-list was far less -- we welcomed six newcomers and saw another six downgraded as of Oct. 31.
Equity A-List Upgrades
ARK Small Cap Equity Retail A
Atlas Assets Global Growth A
Fidelity Advisor Mid Cap T
Fidelity Mid Cap Stock
Fidelity Select Biotechnology
Fremont US Micro Cap
Julius Baer International Equity A
Keeley Small Cap Value
Liberty Acorn Z
Marshall Mid Cap Value Inv
Merrill Lynch Master Small Cap Value B
North Track PSE Tech 100 Idx A
Purisima Total Return
RS Diversified Growth A
Royce Pennsylvania Mutual Inv
Sentinel Small Company A
Smith Barney Security & Growth A
Strong Opportunity Inv
T Rowe Price Health Sciences
Vanguard Capital Opportunity
Equity A-List Downgrades
Amer Century Utilities Inv
Capital Income Builder A
Delaware RE Inv Tr A
Eaton Vance Growth & Inc A
Fifth Third Strategic Income Adv
GMO US Core III
Gabelli Westwood Balanced AAA
Lord Abbett Mid Cap Value A
MFS Total Return A
MS Glbl Utilities B
Meeder Advisors Utility Growth A
Mosaic Equity Tr Balanced
Van Kampen Growth & Income A
Vanguard Equity Income
Vanguard Wellington Inv
Fixed-Income A-List Upgrades
Federated Limited Duration Instl
Fifth Third MI Municipal Bond Inv
Goldman Sachs Adj Rate Gov A
T Rowe Price Short Term Bond
WPG Intermediate Muni Bond
Wells Fargo National Limited Tm Tax Free I
Fixed-Income A-List Downgrades
Eaton Vance Prime Rate Reserves
Kent MI Municipal Bond Inv
One Group Short Term Bond I
State Farm Municipal Bond
USAA Short Term Bond
Vanguard Muni Bond Limited Term
By James A. Anderson in New York
Edited by Edited by Patricia O'Connell