Mutual Funds' Specter: Inflation

Both equity and bond funds suffered in March as investors became spooked about rising prices and interest rates

By Amey Stone

Investing in March was dominated by inflation fears. As the price of crude oil spiked and interest rates rose, most stocks fell. Bonds struggled, too, as investors worried that rising energy prices would trigger higher costs for businesses and consumers as well as inspire more rate hikes by the Federal Reserve.

The average U.S. diversified equity fund fell 1.9% in the month, slightly more than the S&P 500-stock index, which declined 1.8%. International equities suffered, falling 3.1% on average, as the dollar rebounded. Emerging markets tanked by a painful 6.7% as investors sought to take profits and reduce risk. (For complete results of more than 5,000 funds, see "BW Online's Interactive Mutual Fund Scoreboard".)


  All categories of U.S. diversified equity funds lost money in March, according to research from Standard & Poor's mutual-fund database. Small-cap growth funds -- which have outperformed in the past year -- were hit hardest, losing 3.1% in March. Large-cap value funds held up the best, down just 1.6%.

Roseanne Pane, mutual-fund strategist at S&P, expects this trend to continue. "In 2005 large-cap funds should provide stronger performance relative to smaller-company funds, since large-cap companies can weather a rising-rate environment better than smaller companies," she said in an Apr. 4 report. Pane also expects large-caps to benefit as the dollar's decline resumes, because they tend to have more international exposure.

A few funds managed to turn in strong results in March. The top performer was Oppenheimer Real Asset (QRAAX ), a unique fund that invests in physical commodities (not stocks) and has more than 70% weighting in energy. It gained 7.7%. Other funds that notched increases were those that short stocks, profiting from declines in share prices. Potomac Small Cap/Short (POSSX ) rose 7.6%, and ProFunds UltraShort Small Cap (UCPIX ) climbed 6.3%.


  The only category of sector fund not to lose money in March was utilities, where returns were flat. Health and real estate funds were the sectors that held up next best, losing 1.7% and 1.8% on average, respectively.

Fixed-income funds offered little safety for investors. The only category of bond fund not to lose money was so-called ultrashort funds (just a notch longer in duration than money market funds), which were flat for the month. The average taxable bond fund lost 0.9% in March, and the average tax-free bond fund fell 0.7%.

Overall, March demonstrated clearly that when fear of inflation is in the air, investors find few places to hide.

  A-List Equity Funds
Fund Symbol 5-Year Annualized Pre-tax Return (%)
ABN AMRO Real Estate N ARFCX 18.6
AIM Energy Inv FSTEX 15.4
AIM Gold & Precious Metals Inv FGLDX 19.1
AIM Real Estate A IARAX 21.3
AXP Precious Metals A INPMX 18.0
Adelante US Real Estate Securities Y LLUYX 19.2
Aegis Value AVALX 19.9
AllianceBernstein Real Est Invstmnt Adv ARSYX 19.3
AllianceBernstein Real Est Invstmnt Instl I ARIIX 18.2
Alpine International Real Estate Equity Y EGLRX 19.7
Alpine Realty Income & Growth Y AIGYX 22.3
Alpine US Real Estate Equity Y EUEYX 32.7
Amer Beacon Small Cap Value PlanAhead AVPAX 21.2
Amer Century Glbl Gold Inv BGEIX 22.0
Amer Century Real Estate Inv REACX 20.1
Amer Century Sm Cap Vl Inv ASVIX 19.9
Amer Century Sm Company Inv ASQIX 14.5
Ariel ARGFX 17.8
Armada Small Cap Value I AMRIX 16.9
Artisan Small Cap Value ARTVX 17.9
Berwyn BERWX 19.0
BlackRock Global Resources Inv A SSGRX 34.4
Boston Company International Small Cap SDISX 14.2
Boston Company Small Cap Value STSVX 16.5
Boston Partners Long Short Equity Inv BPLEX 15.6
Boston Partners Small Cap Value II Inv BPSCX 23.1
Brazos Real Estate Securities Y BJRSX 18.0
Bridgeway Micro Cap Limited BRMCX 16.0
Bridgeway Ultra Small Company BRUSX 23.1
Bridgeway Ultra Small Company Market BRSIX 18.3
Bruce BRUFX 30.5
Buffalo Small Cap BUFSX 14.9
Burnham Financial Serv A BURKX 28.6
CGM Focus CGMFX 31.5
CGM Realty CGMRX 28.9
CRM Small Cap Value Instl CRISX 15.9
Century Small Cap Select Instl CSMCX 19.7
Cohen & Steers Realty Focus Instl CSSPX 19.4
Cohen & Steers Realty Income C CSCIX 18.7
Cohen & Steers Realty Shares CSRSX 19.3
Cohen & Steers Reatly Shares Instl CSRIX 19.4
Columbia Real Estate Equity Z CREEX 17.7
Columbia Small Cap Z SMCEX 14.2
Consulting Grp Cap Mkts SmCp Vl Eq TSVUX 15.2
CornerCap Small Cap Value CSCVX 14.4
Davis Real Estate A RPFRX 18.6
Delafield DEFIX 18.9
Delaware RE Inv Tr A DPREX 18.8
Delaware Small Cap Value A DEVLX 15.7
Diamond Hill Bank & Financial A BANCX 22.1
Dreyfus Premier Sm Cap Val A DSVAX 16.4
EII Realty Securities Instl EIIRX 17.3
Emerald Select Banking & Finance A HSSAX 21.5
Evergreen Precious Metals A EKWAX 27.0
Excelsior Real Estate UMREX 18.8
FBR Small Cap FBRVX 15.9
FBR Small Cap Financial FBRSX 26.7
FMC Strategic Value   19.2
Fairholme FAIRX 18.3
Fidelity Low Priced Stock FLPSX 18.2
Fidelity Real Estate Investment FRESX 20.2
Fidelity Select Chemicals FSCHX 14.7
Fidelity Select Construction & Housing FSHOX 17.9
Fidelity Select Gold FSAGX 18.3
Fidelity Select Home Finance FSVLX 15.8
Fidelity Select Industrial Materials FSDPX 14.8
Fidelity Select Medical Delivery FSHCX 25.4
Fidelity Select Natural Gas FSNGX 15.1
Fifth Third Micro Cap Value Instl MXAIX 17.3
First American Real Estate Securities Y FARCX 20.7
First Eagle Global A SGENX 17.0
First Eagle Gold A SGGDX 27.4
First Eagle Overseas A SGOVX 17.0
Forward Uniplan Real Estate Investment FFREX 17.3
Franklin Balance Sheet Invmt A FRBSX 16.5
Franklin Gold & Precious Metals A FKRCX 17.7
Franklin MicroCap Value FRMCX 19.8
Franklin Real Estate Sec A FREEX 19.3
Franklin Small Cap Value A FRVLX 15.5
Gabelli Gold AAA GOLDX 24.9
Goldman Sachs Mid Cap Value A GCMAX 17.5
Goldman Sachs Real Estate Sec A GREAX 19.7
Goldman Sachs Small Cap Value A GSSMX 16.9
Harris Insight Small Cap Value N HSVAX 17.5
Heartland Select Value HRSVX 14.9
Heartland Value HRTVX 16.0
Heitman REIT PBHG PBRTX 19.1
Hilliard Lyons Senbanc SENBX 19.1
HomeStead Small Company Stock HSCSX 14.7
Hotchkis & Wiley Mid-Cap Value I HWMIX 22.4
Hotchkis & Wiley Small Cap Value I HWSIX 27.9
ICON Energy ICENX 21.1
ICON Leisure and Consumer ICLEX 15.2
ING Precious Metals LEXMX 19.6
ING Russia A LETRX 22.5
Ivy Global Natural Res A IGNAX 21.8
Ivy Real Estate Securities A IRSAX 19.9
Ivy Small Cap Value A IYSAX 15.9
J Hancock Classic Value A PZFVX 16.9
J Hancock Real Estate A JREAX 17.5
JPMorgan Small Cap Value Sel PSOPX 19.2
JPMorgan US Real Estate A SUSIX 19.0
James Advantage Small Cap JASCX 15.8
Janus Mid Cap Value Inv JMCVX 15.1
Jennison Natural Resources A PGNAX 19.5
Keeley Small Cap Value KSCVX 16.9
Kensington Strategic Realty A KSRAX 21.3
Legg Mason Eq Tr US Small Cap Vl Prim LMSVX 16.4
Longleaf Partners Small Cap LLSCX 15.2
Lord Abbett Mid Cap Value A LAVLX 15.9
Lord Abbett Small Cap Value A LRSCX 15.7
MainStay Small Cap Opportunity I MOPIX 14.5
Managers Real Estate Securities MRESX 17.1
Marshall Mid Cap Value Inv MRVEX 15.8
Matthews Asian Growth & Income MACSX 16.1
Merrill Lynch Natural Resources A MDGRX 17.9
Morgan Stanley Instl European Real Estate A MSUAX 22.2
Morgan Stanley Instl US Real Estate A MSUSX 19.9
Morgan Stanley Real Estate B REFBX 18.6
Munder Real Estate Eq Invmnt A MURAX 18.1
Munder Small Cap Value Y MCVYX 18.2
Mutual Financial Services A TFSIX 17.1
Neuberger Berman Genesis Inv NBGNX 16.0
OCM Gold OCMGX 21.9
Oakmark Global I OAKGX 18.5
Oakmark International Small Cap I OAKEX 16.3
Oppenheimer Gold & Special Minerals A OPGSX 20.5
Oppenheimer Small Cap Value A QVSCX 16.1
PIMCO NFJ Small Cap Value A PCVAX 19.5
Pacific Advisors Small Cap A PASMX 17.0
Pacific Capital Small Cap Y PSCYX 21.4
Perritt Micro Cap Opportunities PRCGX 16.0
Phoenix Mid Cap Value Fund A FMIVX 18.5
Phoenix-Duff & Phelps Real Estate Sec A PHRAX 21.0
Phoenix-Seneca Equity Income A REALX 17.1
Pioneer Real Estate Shares A PWREX 18.8
Principal Real Estate Securities A PRRAX 20.0
Putnam Small Cap Value A PSLAX 15.8
RS Global Natural Resources RSNRX 24.2
RS Partners RSPFX 26.4
RS Value RSVAX 18.0
Royce Pennsylvania Mutual Inv PENNX 15.7
Royce Special Equity RYSEX 18.7
Royce Total Return Inv RYTRX 15.1
Russell Real Estate Securities S RRESX 19.3
STI Classic Small Cap Value Equity L STCEX 18.7
Scudder Gold & Precious Metals S SCGDX 27.4
Scudder Small Company Value S SCSUX 15.9
Security Mid Cap Value A SEVAX 15.8
Skyline Special Equities SKSEX 15.4
Smith Barney Small Cap Value A SBVAX 16.4
Spirit of America Real Estate A SOAAX 19.2
Strategic Partners Real Estate Securities A PURAX 21.2
Stratton Growth STRGX 14.6
Stratton Monthly Dividend REIT STMDX 18.5
Stratton Small Cap Value STSCX 19.2
Strong Advisor Small Cap Value Z SSMVX 15.4
T Rowe Price Capital Appreciation PRWCX 14.1
T Rowe Price Mid-Cap Value TRMCX 15.5
T Rowe Price New Era PRNEX 14.4
T Rowe Price Real Estate TRREX 20.2
T Rowe Price Small Cap Value PRSVX 18.3
TAMARACK Enterprise S TETSX 16.1
TAMARACK Microcap Value S TMVSX 14.8
TCW Galileo Value Opportunities I TGVOX 15.2
Texas Capital Value & Growth TCVGX 18.8
Third Avenue Real Estate Value TAREX 21.3
Third Avenue Small Cap Value TASCX 14.2
Third Millennium Russia TMRFX 17.0
Tocqueville Gold TGLDX 26.1
UBS PACE Sm/Med Co Val Eq P PCSVX 14.3
UMB Scout Small Cap UMBHX 14.9
US Global Accolade Eastern European EUROX 21.0
US Global Inv Global Resources PSPFX 28.1
US Global Inv Gold Shares USERX 20.9
US Global Inv World Prec Minerals UNWPX 23.2
USAA Precious Metals & Minerals USAGX 26.3
Undiscovered Managers REIT Instl URTLX 20.0
Van Eck Intl Investors Gold A INIVX 21.8
Van Kampen Real Estate Securities A ACREX 18.9
Vanguard Energy Inv VGENX 19.8
Vanguard Precious Metals VGPMX 26.6
Vanguard REIT Index VGSIX 18.7
Vanguard Selected Value VASVX 15.2
Wasatch Core Growth WGROX 17.5
Wasatch Micro Cap WMICX 20.9
Wasatch Small Cap Value WMCVX 17.4
Wells S&P REIT Index A WSPAX 18.5
Westwood Realty AAA WESRX 18.0
Wilshire Target Small Co Vl Inv DTSVX 15.6
Yacktman YACKX 18.9
Yacktman Focused YAFFX 17.9
iShares MSCI Australia Index EWA 14.4
iShares MSCI Austria Index EWO 25.1
n/i numeric investors Small Cap Value NISVX 25.4

Stone is a senior writer at BusinessWeek Online and covers the markets as a Street Wise columnist

Before it's here, it's on the Bloomberg Terminal.