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First-Quarter Mutual Funds Report

Raining Dogs

Everywhere You Looked, Funds Were Falling. Shower or Deluge?

By Joanne Legomsky
Special to The Washington Post
Sunday, April 3, 2005; Page F01

After two back-to-back yearly gains, mutual fund returns thudded back to earth in the first quarter of 2005. The question for investors is whether it represents a blip or marks a tipping point in investor sentiment.

The quarter's lackluster showing was not a complete breach with recent trends. After all, it took a strong fourth-quarter rally to pull slumping fund averages into positive territory in 2004.

_____1st Quarter Scorecard_____
Research your mutual funds' performance for the first quarter of 2005:
Biggest Funds
Best Performing Funds
Worst Performing
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_____Mutual Funds Report_____
As Dow 11,000 Fades Further, Inflation Colors Assessments (The Washington Post, Apr 3, 2005)
Waiting for Greenspan (The Washington Post, Apr 3, 2005)
Sector ETFs Allow Investing in Trends (The Washington Post, Apr 3, 2005)
_____Funds Q&A_____
Transcript: Washington Post reporter Ben White was online to answer questions about how inflation worries are influencing stock and mutual-fund performance.
_____Earnings Watch_____
Jos. A. Bank Earnings Rise 31 Percent (Reuters, Apr 4, 2005)
Jos. A. Bank Posts Higher 4Q Profit (Associated Press, Apr 4, 2005)
Service Corp Sees Earnings Fall (Associated Press, Apr 1, 2005)
Best Buy to End Rebates, Reports Earnings (Associated Press, Apr 1, 2005)
Best Buy to End Rebates, Reports Earnings (Associated Press, Apr 1, 2005)
More Earnings News
_____The Markets_____
Dow Over 12 Months
Nasdaq Over 12 Months
S&P 500 Over 12 Months

This quarter, the breadth of the decline in fund performance was more striking than its depth.

For example, none of the 14 largest U.S. diversified stock fund categories -- with a bit more than $3 trillion in assets, combined -- had positive returns for the quarter. The range of performance was fairly narrow: The average fund group decline was 2.52 percent. Small-cap growth funds were the biggest losers, falling 5.39 percent, while mid-cap value and equity income funds held up the best, slipping by less than half of 1 percent.

Overall this quarter, value stock funds, which buy stocks that fund managers consider underpriced, continued to trump more richly valued, faster-growing growth stocks. Many value funds benefited from their sizable holdings of still-sizzling energy stocks, while growth funds were hurt by a nose dive in technology stocks, many of which posted significant losses for the period.

Now, more than 3 1/2 years into an economic recovery, the market's malaise is not surprising. Skyrocketing commodity prices, the shrinking dollar and a whiff of inflation -- something not spotted for ages -- are understandably spooking investors, despite still-respectable growth in the economy and corporate profit.

The market malaise engulfed virtually all industry sectors. Apart from powerful gains in energy-laden natural resources funds, which climbed 12.45 percent in the quarter and 37.7 percent in the past 12 months, six of the eight sector fund categories were seriously underwater for the period.

Science and technology funds, mired in their own mini bear market, fell 9.01 percent, while telecom funds dropped 6.97 percent. Reflecting the bite of rising interest rates, financial services funds fell 5.67 percent. Even real estate funds, multiyear out-performers, finally threw in the towel. The cracks in the previously impervious real estate sector, which fell 6.68 percent in the quarter after five years of outstanding gains, partly reflected rising interest rates, which meant greater competition from higher yields on newly issued bonds. Utilities funds managed a 2.7 percent gain.

Indeed, technology's slide has prompted some industry observers to believe that the era of "tech exceptionalism" may be behind it and that technology may become just another cyclical stock group, if Silicon Valley continues to lose ground to its global rivals.

More promising, says Robert MacKenzie, who covers oil services companies for Friedman, Billings, Ramsey & Co. in Arlington, is that, despite the strong run in oil stocks, investors can still make good money in this sector.


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