LIPPER SENIOR RESEARCH ANALYST DON CASSIDY ON KTLK AM-760
Thursday, Nov. 15
DON: I've got 2 riddles for you and our listeners:- What has been the BEST performing type of mutual funds for thewhole of 2001 to date?
- Gold funds, +14.8%
- What has been the WORST performing since September 17th, the daythe market re-opened?
- Gold funds, -2.2%
Q. What in the world is going on?
A. Well, many people, and at much deeper levels, have said that "Sept. 11changed everything." Turns out this is true in the stock market as well.
Q. You mean there are more reversals than just that gold situation?
A. Oh, absolutely! Listen to these names that were all among thestrongest through mid summer, especially off the market's March bottom...
- Small-cap Value
- Real Estate
- Mid-cap Value
- Natural Resources
...they're now all well down below the middle in performance sinceSept. 11, or even at the very bottom.
Q. Are there any reversals in the opposite direction?
A. Definitely: 5 of the 6 worst-performance groups of the year are amongthe very best since Sept. 17 - the first day the market thought it hadsorted out the implications of the terrorism era. And they were mainlyhelped by the NASDAQ, which was slaughtered earlier and has outperformedevery type of fund since Sept. 17...
- Science & Technology funds - down 46% then, have jumped the most, up19.7%
- Multi-cap Growth funds - down 35% then, is up 12.5% since
- Large-cap Growth funds - down about another 33% after last year'ssmash, is up almost 13% since
- Pacific Ex Japan funds - is up over 10%, or MORE than the non-NASDAQmajor US indices.
And outside the real extremes, when we look at our matrix of DIVERSIFIEDfund types, it's almost a perfect reverse in ranks: value and small-cap hadwon before Sept. 11, and growth and large-cap are the leaders since...
| Year to Date - thru Nov. 13 (percent returns) |
| | Growth | Core | Value |
| Large-cap | -24.6 | -13.8 | -10.2 |
| Multi-cap | -26.9 | -13.8 | -2.5 |
| Mid-cap | -25.6 | -10.5 | 0.2 |
| Small-cap | -19.9 | -2.6 | 7.6 |
but included in that, since Sept. 10...
| | Growth | Core | Value |
| Large-cap | 6.8 | 4.3 | 1.9 |
| Multi-cap | 5.8 | 2.6 | 1.3 |
| Mid-cap | 2.7 | 2.4 | 1.0 |
| Small-cap | 2.4 | 1.5 | -0.4 |
Q. Why IS this, Don?
A. Not entirely sure in the big-picture sense, but one big driver on apure mathematical basis has been the Semiconductor stocks, which are up astunning 51%. They sure help growth and technology portfolios...
Q. How can it be that some of the parts of the US and world economieswhere the near-term outlook is the bleakest, have had the best stockperformance?
A. Well, one factor many people would cite is the old fact about the majormarket bottoms coming WHILE the recession is in full swing. That surequalifies right now. But I think there's another factor, and it's sort-ofsubtle psychology stuff.
Q. What?
A. Six days. If the attacks had been in any other major city but NYC andhad not disrupted the physical infrastructure of the markets, Wall Streetwould probably have re-opened in a day or at most 2. But we closed for 4business days plus the weekend. People had an awful lot of time to thinkand look ahead. And they all took action en masse. Yesterday, Lockheed,Northrop, and Raytheon all closed BELOW where they did on Sept. 17...
Q. And yet the market seems to have been so bullish after that first weekafter the attacks....
A. I believe that is because "everyone" came to know and believe andunderstand the same future scenario in a very concentrated period of time... those 6 off days plus the nasty first week of trading. I think whathappened is that IF there was anyone who was going to sell certain kinds ofstocks in any size, they got shaken out by the events of the 11th and themarket drop of the 17-21st, and they are DONE selling. So stocks haverisen through a relative vacuum since then. The kinds of stocks with themost bleak scenarios all got smashed, and it was finished quickly.
Q. But the business news has stayed pretty grim. Unemployment up 1/2%,layoffs, bankruptcies....
A. Right, although there has been an offset: the war has started goingpretty well in the past week, and retail sales have bounced, and energyprices did not spike. The AA Flt. 587 crash was a brief selling trigger,but we saw resilience as the cause seemed to become apparent. There's anold saying that when stocks stop going down on bad news, they are headedup.
Q. OK, we've been talking about investors buying and selling stocks. Whatabout mutual funds?
A. Normally I'd say the same kinds of people buy stocks and equity funds,that the same thinking prevails. We had record outflows in stock funds inSeptember, and preliminary data point to a VERY small inflow for October.SOMEONE is buying stocks, and I suspect it is professionals, and maybeoverseas people too. But funds investors are still very cautious... andmany have mentally locked themselves into their loss positions, so they ineffect have no cash to work with. Sales and redemption data show thatBOTH are well below former levels. People are not buying much, nor arethey liquidating. They are just sitting.
Q. So, would you say funds investors are not presently influencing themarket much?
A. I'd have to conclude that. Except in huge temporary emotional bursts,they fortunately don't buy or sell enough to really force portfoliomanagers to take action. The average stock fund has over 5% in cash, agood cushion.
