The Early Fund Rally Loses Steam

Mutual funds got off to a great start in 2003, but most categories couldn't maintain the momentum

By Amey Stone

Stock-fund returns galloped out of the gates in January but stumbled mid-month as war fears mounted and corporate earnings failed to fulfill hopes that a strong rebound was under way. Funds limped to the finish, and the average diversified equity fund in the BusinessWeek Mutual Fund Scoreboard ended the month down 2.3%, faring just slightly better than the Standard & Poor's 500-stock index, which lost 2.6%.

The top-performing category of funds in January was Pacific Rim (which invest in Asian countries, excluding Japan), which notched a gain of 1.3%. Funds that invest in China and Taiwan, which are heavily tied to the chipmaking and electronics industries, led the charge. An index of Taiwanese stocks, iShares MSCI Taiwan Index (EWT ), was one of the top-performing funds, up 12% in January. Not all Pacific Rim funds participated in the gains. Eaton Vance Greater India (BMGIX ) was down 5.2% in January, for example.


  Thanks to their defensive qualities, precious metals funds eked out a 1.1% gain in January, which is quite tepid following the volatile group's outsize gains in 2002. Oppenheimer Real Asset (QRAAX ), which benefited from rising commodities prices worldwide, was a standout with a 9.1% gain in January. The fund has gained 43% in the past 12 months.

Technology and communications funds, down just 0.4% and 1%, respectively, held up remarkably well in January considering that the market was down. That's mainly because the funds rallied so far and so fast in the first weeks of the month that they hadn't given up all their gains by the end. IShares Goldman Sachs Networking Index (IGN ) was the top performer, up 9.6% in the month.

While Pacific Rim funds earned top honors in January, the worst-performing fund categories were Latin America and Europe. A-rated Artisan International (ARTIX ) fell a punishing 7.4% in January. In general, funds that invest in less developed countries have held up better than funds that focus on developed markets, says Emily Hall, senior mutual-fund analyst at Morningstar.


  The fixed-income side of the fund world also offered a mixed bag of results in January. Higher-risk emerging-markets and junk-bond funds did the best, both gaining 1.9% for the month. Excelsior High Yield (UMHYX ), with a 6.6% one-month gain, was the top performer. On average, though, bond funds posted flat returns in January.

Municipal-bond funds dipped 0.5% in January, tarnished by daunting fiscal problems at the state and local levels (see BW Online, 2/7/03, "The Dire State of the States") as well as concerns that President Bush's proposal to eliminate taxation of stock dividends would crimp demand for tax-exempt bonds.

Overall, January was somewhat of a paradox when it came to mutual-fund results since the riskiest funds did the best, even though the broad market indexes were down. "In general you don't want to make too much out of a single month's performance," says Morningstar's Hall. That bit of conventional wisdom was especially true for January.

Funds rated A in January:

AIM Global Health Care A

ARK Small Cap Equity A

Advisors Inner Circle FMC Select

Al Frank

Amer Century Equity Inc Inv

Amer Century Glbl Gold Inv


Ariel Appreciation

Armada Small Cap Value I

Artisan International

Artisan Mid Cap

Artisan Small Cap Value

BNY Hamilton Sm Cap Gr Inv

Baron Growth

Baron Small Cap

Berger Small Cap Value Inv

Bjurman Micro Cap Growth

BlackRock International Opportunities Inv A

Brazos Micro Cap Y

Bridgeway Aggressive Investors 1

Bridgeway Ultra Small Company

Bridgeway Ultra Small Company Tax Adv


CGM Focus

Calamos Growth A

California Investment S&P Mid Cap Index


Conseco Equity Y

Dodge & Cox Balanced

Dodge & Cox Stock

Driehaus Asia Pacific Growth

Eaton Vance Wldwd Hlth Sciences A

Emerald Select Banking & Finance A

Evergreen Precious Metals Holdings A

Exeter Pro Blend Conservative Term A

FBR Small Cap Financial A

FBR Small Cap Value A

FMI Focus

Fidelity Advisor Mid Cap T

Fidelity Export & Multinational

Fidelity Fifty

Fidelity Japan Small Co

Fidelity Low Priced Stock

Fidelity New Millennium

Fidelity Select Gold

Fidelity Select Insurance

Fidelity Select Natural Gas

Fidelity Select Software & Computer

Fifth Third Micro Cap Value Instl

Fifth Third Strategic Income Adv

First American MicroCap Y

First Eagle Fund Of America Y

First Eagle Global A

First Eagle Overseas A

First EagleGold

Franklin Gold & Precious Metals A

Franklin Microcap Value

Fremont US Micro Cap

Fremont US Micro Cap Instl

Gabelli ABC

Gabelli Gold

Hartford Mid Cap A

Hennessy Cornerstone Growth

Heritage Mid Cap Stock A

Hotchkis & Wiley Mid-Cap Value I

ICON Energy

ICON Financial

ICON Healthcare

ICON Information Technology

ICON Leisure and Consumer

IMS Capital Value

ING Precious Metals

INVESCO Energy Inv

INVESCO Leisure Inv

JPMorgan Mid Cap Value I

Janus Adviser Balanced I

Janus Adviser Capital Appreciation I

Janus Aspen Cap Appreciation Instl

Janus Balanced


Julius Baer International Equity A

Kinetics Internet

Legg Mason Eq Tr Special Invmnt Prim

Liberty Acorn Z

Longleaf Partners

Lord Abbett Mid Cap Value A

MFS International New Discovery A

Mairs & Power Growth

Marshall Mid Cap Value Inv

Matthews Asian Growth & Income

Matthews Korea

Matthews Pacific Tiger


Meridian Growth

Meridian Value

Merrill Lynch Global Small Cap B

Merrill Lynch Healthcare B

Monterey OCM Gold

Montgomery Emerging Markets Focus R

Montgomery Global Long Short R

Morgan Stanley Health Sciences Trust B

Morgan Stanley Instl Small Company Gr B

Mosaic Equity Tr Mid Cap

Mutual European Z

Mutual Financial Services A

NI Numeric Investors Emerging Growth

Navellier Perf Mid Cap Growth

Needham Growth

Neuberger Berman Genesis Inv

North Track PSE Tech 100 Idx A

Oakmark Equity & Income I

Oakmark International Small Cap I

Olstein Financial Alert C

Oppenheimer Gold & Special Minerals A


PBHG Large Cap Value

PBHG Mid Cap Value

PIMCO RCM Biotechnology D

PIMCO RCM Global Healthcare D

Parnassus Income Equity Income

Prudential Natural Resources A

Quaker Aggressive Growth A

Reserve Private Eqty Small Cap Growth R

Rockland Small Cap Growth

Royce Low Priced Stock

Royce Micro-Cap Inv

Royce Opportunity Inv

Royce Pennsylvania Mutual Inv

Royce Premier

Royce Total Return

Royce Trust & Giftshares Inv

Salomon Brothers Capital B

Schroder Capital Ultra Inv

Scudder Gold & Precious Metals S

Scudder Micro Cap Invest

Security Mid Cap Value A

Sentinel Small Company A


Smith Barney Aggressive Growth A

Strong Advisor Small Cap Value Z

T Rowe Price Capital Appreciation

T Rowe Price Health Sciences

T Rowe Price Intl Discovery

T Rowe Price Mid-Cap Value

TCW Galileo Value Opportunities I

Thompson Plumb Balanced

Thompson Plumb Growth

Tocqueville Small Cap Value

Touchstone Emerging Growth A

Transamerica Premier Growth Oppt Inv

Turner Small Cap Value

USAA Precious Metals & Minerals

Undiscovered Managers REIT Instl

Undiscovered Managers Small Cap Vl Instl

Value Line Emerging Opportunities

Vanguard Capital Opportunity

Vanguard Health Care

Vanguard International Explorer

Vanguard Precious Metals

Vanguard Wellesley Income Inv WM West Coast Equity A

Waddell & Reed Adv Asset Strategy A

Waddell & Reed Adv Science & Technology A

Wasatch Core Growth

Wasatch Micro Cap

Wasatch Small Cap Growth

Wasatch Small Cap Value

Wasatch Ultra Growth

Weitz Partners Value

Weitz Value

Westport R

Westport Select Cap R

William Blair International Growth N

iShares MSCI Malaysia Index

Stone is an associate editor of BusinessWeek Online and covers the markets as a Street Wise columnist and mutual funds in her Mutual Funds Maven column

Edited by Patricia O'Connell

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