LIPPER SENIOR RESEARCH ANALYST DON CASSIDY ON KTLK AM-760
Thursday, August 20
Q. Well, Don, there was a pretty good rally in stocks yesterday afternoon,but the performance damage to mutual funds is still fairly deep since theclose on September 10.A. Definitely. And of course is still is so stunning and shocking thattalking about fund performance almost seem not very meaningful in the bigpicture, and yet we must pick up our lives and go forward, doing what it iswe each do....
Q. So, in general, what can we say about fund performance?
A. Things are very much as one would have predicted if you knew what wasgoing to happen. After yesterday's decline and partial rally, there arealmost no types of funds up. Gold, the traditional place of retreat in timeof crisis, is up a couple of percent. Short and intermediate governmentbond funds are up. And most types of quality bond funds, taxable andmunicipal, are down very slightly.
Q. What about equity funds, Don?
A. Utility funds are about the best, down 3% or so. Real Estate,Balanced, and Convertible Securities funds are down a bit over 4%.Large-cap has moderately beaten mid-cap and small-cap, and value has held alittle better than growth style.
Q. What are the hardest-hit fund types?
A. Bad as some of the numbers are domestically, world equity markets aredown even more. Especially the already fragile economic areas...our LipperFund Indices show this...
- Lipper Pacific Ex-Japan Fd Index -11%
- Lipper Emerging Markets Fd Index -10
- Lipper Latin American Fd Index -10
- Lipper Pacific Region Fd Index -8
- Lipper Science & Tech Fd Index -11
Q. Why do you suppose the Science & Technology funds got hurt so badly?
A. Well, remember that there are a lot of fragile companies in thoseareas, companies that never have yet shown a profit. And the oldercompanies are still selling at high P/E multiples, so it is not like theywere a value haven. And in terms of the economy, people are realizing thatthe economic recovery will be longer in coming than we thought before, sostocks that are already seen as dependent on an upturn in final demand areagain the victims. Plus, I suppose, a few margin calls in some stocks too.
Q. Have the funds been forced to sell because investors have been cashingin?
A. There certainly have been isolated instances of individual funds, butthe average stock fund had almost 6% cash before this tragedy happened, andredemptions have been very small, so I would say no. True, fund managershave been pulling out of the groups that now have troubled-lookingoutlooks, and they have been buying only gingerly.
Q. What is the outlook now? Should people sell, or hold or buy?
A. If I could be SURE we would not suffer another terrorist retaliationonce our military response swings into action, I would say yesterday lookedlike a bottom. Big volume, a mid-day turnaround, and some pretty scarymid-day feelings.
Q. And how should people react?
A. That depends entirely on who you are. For example, suppose you areretired or very close to it, and HAVE ENOUGH to provide you the income youneed for life. In that case, if you are at all nervous, you could stillsell and put it all in government bond funds. No need to risk capitalsince you have no need to GROW capital. But if you need to build assetsand have some years to go, I would say holding or buying cautiously makessense. Not the aggressive types of funds, but things that can give you adecent return, like convertibles, real estate, value funds, and maybeutility funds, although you might be careful because of possible attacks onnuke plants.
Q. But buying is so scary right now!
A. And historically that means it is the RIGHT thing to do. BaronRothschild said "The time to buy is when blood is running in the streets."He was referring to domestic revolution, but the principle is valid nowtoo. As I have said a number of times, what makes you emotionallycomfortable will make you NOT prosperous and therefore financiallyUNcomfortable. Buying high (18 months ago) and selling low (at marketbottoms) makes us feel comfortable. Selling high and buying low is lonelywork. But it pays well!
