Bond Funds Wilted in July

The recent rate jumps slammed fixed-income-fund investors. Tech and small-cap stock funds, however, were among the month's standouts

By Amey Stone

For fund investors, the big story in July was the bond market. Interest rates, which had been at generational lows, began a sharp spike mid-month and kept rising. Bond funds, the former stars of the bear market, lost an average of 2.8% of their value in July with long-bond funds faring worst. The rally in stocks stalled as investors worried that bonds were signaling that inflation could be coming.

On a bright note: Equity funds outperformed the S&P 500-stock index by one of the largest margins in years, mainly because small stocks outperformed large caps. The large-cap index gained just 1.8% in July, while the average U.S. diversified equity fund gained 3.1%, and international equity funds gained 3.2%. (For full results of more than 9,000 funds, see "BW Online's Interactive Mutual Fund Scoreboard".)


  Funds that invest in Asia (many with heavy exposure to rebounding technology stocks) were top performers. The category logging the biggest gains in July were Pacific Rim funds (not including Japan), up 8.2% that month. Tech was the second-best-performing fund category, gaining 6.3%. Among the stars: Matthews Asian Technology (MATFX ), up 15.1%, and Firsthand Technology Value (TVFQX ), up 15.9% in July.

Of diversified U.S. stock funds, small-cap growth names, up 5.9% in the month, far outperformed large-cap growth funds, which were only 2.8% higher. Small-cap value funds climbed 4.8%, while large-cap value funds gained just 1.5%. Henlopen (HENLX ) was the best performer among small-caps, gaining a hefty 17.4% in July.

Some defensive sectors held up well for the month. Precious-metals funds climbed 5.3%. Funds that usually perform well when interest rates are falling also turned in strong performances for the month as a whole. Real estate and financial funds climbed 4.7% and 4.1%, respectively.


  Utilities were the most dismal fund category, down 4.1% in July. Natural resources funds fell 2.9%. One of the worst-performing individual funds in the month was Fidelity Select Energy Service (FSESX ), which lost 8.3% in July.

Still, it was mainly fixed-income investors who were licking their wounds in July due to the jump in rates (since bond prices move inversely to interest rates). Hardest hit were long government bond funds, which fell 7%. Short government bond funds fell just 1.7%. Ultrashort bond funds, which have the minimal exposure to interest rates, lost a minuscule 0.3%.

The rate spike may prove just short-lived if the economy doesn't continue to gain speed. But in July, investors saw that once-steady bond funds can sometimes be as volatile as their equity counterparts.

Funds rated A in July:

1st Source Monogram Special Equity


ABN AMRO Real Estate N

ABN AMRO Veredus Aggressive Growth N

AIM Opportunities I A

ARK Small Cap Equity A

Aegis Value

Al Frank

Alliance Greater China 97 B

Amer Century Glbl Gold Inv

Amer Century Real Estate Inv

Amer Century Sm Cap Vl Inv


Armada Small Cap Value I

Artisan Mid Cap

BNY Hamilton Sm Cap Gr Inv

Baron Growth

Baron Small Cap

Bjurman Barry Micro Cap Growth

BlackRock International Opportunities Inv A

BlackRock US Opportunities Inv B

Boston Partners Small Cap Value II Invest

Brazos Micro Cap Y

Bridgeway Aggressive Investors 1

Bridgeway Micro Cap Limited

Bridgeway Ultra Small Company

Bridgeway Ultra Small Company Market


Buffalo Small Cap

CGM Focus

CGM Realty

Calamos Growth A


Commonwealth New Zealand

Conseco Equity Y


Dreyfus Premier Greater China A

Driehaus Asia Pacific Growth

Driehaus Emerging Markets Growth

Eaton Vance Wldwd Hlth Sciences A

Emerald Select Banking & Finance A

Evergreen Precious Metals Holdings A

F Russell Real Estate Securities S

FBR Small Cap Financial A

FBR Small Cap Value A

FMI Common Stock

FMI Focus

Fidelity Japan Small Co

Fidelity Low Priced Stock

Fidelity New Millennium

Fidelity Real Estate Investment

Fidelity Select Biotechnology

Fidelity Select Gold

Fidelity Select Medical Systems & Equipment

Fidelity Small Cap Stock

Fidelity Southeast Asia

Fifth Third Micro Cap Value Instl

First American Real Estate Securities Y

First American Small Cap Growth Opport Y

First Eagle Gold

First Eagle Overseas A

Franklin Biotechnology Discovery A

Franklin Gold & Precious Metals A

Fremont US Micro Cap

Fremont US Micro Cap Instl

GMO Emerging Countries III

Gabelli Gold

Gabelli Westwood Mighty Mites AAA

Gabelli Westwood Realty AAA

Guinness Atkinson China & Hong Kong

Hartford Mid Cap A

Heartland Value

Hennessy Cornerstone Growth

Heritage Mid Cap Stock A

Hotchkis & Wiley Mid-Cap Value I

ICON Energy

ICON Information Technology

IMS Capital Value

ING Precious Metals

ING Russia A

INVESCO Energy Inv

INVESCO Leisure Inv

Ivy Global Natural Res A

JPMorgan Mid Cap Value I

Janus Small Cap Value Inv

Jennison Natural Resources A

Kinetics Internet

Legg Mason Eq Tr Special Invmnt Prim

Liberty Acorn Z

Liberty Newport Greater China A

Liberty Small Cap Z

Lord Abbett Small Cap Value A

MFS Strategic Value A

Matthews Asian Growth & Income

Matthews China

Matthews Korea

Matthews Pacific Tiger

Meridian Growth

Meridian Value

Merrill Lynch Global Small Cap B

Merrill Lynch Master Small Cap Value B

Morgan Stanley Health Sciences Trust B

Morgan Stanley Instl Small Cap Growth Inst

Morgan Stanley Instl Small Company Gr B

Morgan Stanley Instl US Real Estate A

Mosaic Equity Tr Mid Cap

Munder Healthcare B

NI Numeric Investors Emerging Growth

Navellier Perf Mid Cap Growth

Needham Growth

Neuberger Berman Genesis Inv

Nuveen NWQ Multi Cap Value R

OCM Gold

Oakmark Equity & Income I

Oakmark International Small Cap I

Oakmark Select I

Oberweis Emerging Growth

Oberweis Micro Cap

Olstein Financial Alert C

Oppenheimer Gold & Special Minerals A


PBHG Mid Cap

PIMCO RCM Biotechnology D

PIMCO RCM Global Healthcare D

Parnassus Income Equity Income

Perkins Discovery

Perritt Micro Cap Opportunities

Phoenix-Duff & Phelps Real Estate Sec A

Pioneer Small Cap Value A

Quaker Aggressive Growth A

RS Partners

Reserve Private Eqty Small Cap Growth R

Rockland Small Cap Growth

Royce Low Priced Stock

Royce Micro-Cap Inv

Royce Opportunity Inv

Royce Premier

Royce Special Equity

Royce Trust & Giftshares Inv

Rydex BioTechnology Inv

Santa Barbara Bender Growth Y

Scudder Gold & Precious Metals S

Scudder Micro Cap Invest

Security Capital US Real Estate

Security Mid Cap Growth A

Security Mid Cap Value A

Sentinel Small Company A

Smith Barney Aggressive Growth A

State Street Research Aurora A

State Street Research Global Resources A

Stratton Monthly Dividend REIT

Strong Advisor Small Cap Value Z

T Rowe Price Capital Appreciation

T Rowe Price Health Sciences

T Rowe Price Real Estate

TCW Galileo Asia Pacific Equity I

TCW Galileo Opportunity I

TCW Galileo Value Opportunities I

Thompson Plumb Growth

Tocqueville Gold

Tocqueville Small Cap Value

Touchstone Emerging Growth A

Turner Micro Cap Growth

Turner Small Cap Value

USAA Precious Metals & Minerals

Undiscovered Managers REIT Instl

Value Line Emerging Opportunities

Vanguard Capital Opportunity

Vanguard Health Care

Vanguard Precious Metals

WM West Coast Equity A

Wasatch Core Growth

Wasatch Micro Cap

Wasatch Small Cap Growth

Wasatch Small Cap Value

Wasatch Ultra Growth

Wells Fargo Montgomery Emrg Mrkts Focus I

Westport R

Westport Select Cap I

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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