Lipper Research Analyst Jeff Tjornehoj on "Business for Breakfast" 1060 KRCN - 6 months in the books!
Q. Jeff, it hardly seems possible that the first half of 2006 is in thebooks! How did the fund performance numbers stack up?A. Short story: not bad, not as nice as 7 weeks earlier, and it was a wildride lately!
Q. Definitely some of the earlier big-winner groups took a pounding, right?
A. That was a major pattern: what had done very well was exactly whereinvestors and hedge funds nailed down their gains fastest.
Q. Any examples?
A. Sure. From May 10 (the top) to the June 13 bottom, here are some numberson the hardest drops on average:
- Gold-Oriented Funds -28.7%
- Emerging Markets Funds -24.2
- Japanese Funds -20.8
- Natural Resources Fds -20.0
Q. We probably ought to ask about BOND funds, since interest-rate worriesseemed to be the trigger for the stock decline...A. Right. It was a bit strange, in that stocks took the hit and bonds heldon fairly well. Of course, bonds and bond funds had a big rally right atthe end (June 29030) after the Fed raised rates again. That seemed to coolinflation fears.
Q. OK, back to stock funds if we can. When you look at the 6-monthscoreboard, what stands out?
A. Mainly that the leaders as of April are mostly the same names, but thescores are not as good as they had been.
Q. How about some broad numbers?
A. OK. Since a lot of people use it, and there is a LOT of money investedthere, the S&P 500 index funds gained a net of 2.46% for the half - almostall of it on June 29.
Q. What about small vs large and value vs growth?
A. Well, in the downturn of course large and value held up much better. Buteven after the May/June damage, small is still ahead for the year.
Q. And everyone last winter said it would be Large's turn!
A. Right, and we at Lipper were included. The performance advantage forsmallcap is still about 5 points. If the market should decline further orjust stay jittery and sideways, we would not be surprised to see large dosomewhat better. They just feel safer, and offer better value metrics too.
Q. How about the sector and world areas? What happened there?
A. Well, it was definitely a bumpy ride for gold and oil and otherresources, but when the curtain came down on Q2 the gold funds were thebest of any Lipper classification, with a 22.4% average gain. China Regionfunds, which we liked as a contrarian play last winter, were up 21.7%.They basically did not take the big hit that many other emerging marketsfelt. Third best are the Nat Resources funds, back up to +13.97%. They arestill ahead 38.6% on a 12-month basis!
Q. What else has done well?
A. Domestically, Real Estate funds (which are about 90% in REITs) are up12.70%. They actually were the strongest group in June despite the talk ofhigher rates.
Q. How could that be?
A. A couple of announce takeovers helped, and people seemed to be moving tothe perceived safety of high current dividends. Utility stocks were up alittle too, and that kind of funds is up 6.91% for the 6 months, well aboveaverage.
Q. And how about international?
A. Overall, they are way ahead of domestic: about +8.6% on average to about+3.3%. Contrary to the US pattern, growth is beating value overseas. Butsmall is also ahead of large, as we see at home.
Q. how about some of the areas?
A. Japan, which was up nicely early, is now trailing with a 3.9% averagefund loss at midyear. Europe, helped by a strong Euro vs US$, is tops witha 13.5% gain. Latin American funds held up pretty well in June and are nowin second place, up 12.8%. They took a big hit in May. But oil's reboundto over $70 helped the exporters.
Q. Overall thoughts, Jeff?
A. The volatility we all saw reminds me again of the case for diversifyingand sometimes taking some big-gain risk money off the table.
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Don Cassidy is a Senior Research Analyst at Lipper specializing in fund flows, exchange-traded funds, (ETFs), closed-end funds, equity fund performance, and author of Trading on Volume (McGraw-HIll).
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