A Bit of a Fall Blossom

October's stock market rebound treated tech investors to a comeback, though not nearly enough to ease the year's pain so far

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.


  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

Kinetics Internet

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

Century Shares

Delaware RE Inv Tr A

Eaton Vance Growth & Inc A

Fifth Third Strategic Income Adv


Gabelli Westwood Balanced AAA

ICAP Equity

Lord Abbett Mid Cap Value A

MFS Total Return A

MS Glbl Utilities B

Meeder Advisors Utility Growth A

Mosaic Equity Tr Balanced

Selected American

Sound Shore

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

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