Spotlight Turns to Large-Cap Mutual Funds
Sunday, October 29, 2006
NEW YORK -- The roar the Dow Jones industrial average has unleashed in recent months is being heard by some as the sound of large-capitalization stocks reasserting themselves. It appears, though, that many mutual fund investors aren't listening or at least aren't rushing into mutual funds that invest in these companies.
The ascension of large-cap stocks has no doubt made some investors swoon. The Dow, made up of 30 blue-chip stocks like General Electric Co. and Caterpillar Inc., has been on a tear in October, logging triple-digit point gains in each of the first three weeks of the month and passing 12,100 for the first time.
While many mutual fund managers see a shift toward large-cap funds in the offing, investors aren't running away from funds comprising small cap stocks, which have been strong for years.
Estimates from Lipper Inc., which tracks funds, show that investors pulled more money, about $4.9 billion, from large-cap funds during a difficult September on Wall Street than from any other type of fund. Small-cap funds, by comparison, saw outflows of only $1 billion. Investors put about $5.4 billion into multi-cap funds.
"Large-caps probably have a better road ahead," said Tom Roseen, an analyst at Lipper. "Large-caps were just kind of languishing," he said of the past four years when small caps held many investors' attention.
Roseen expects that the performance of some large-cap funds this year will draw increased attention. Through late last week, large-cap value funds showed a 12.81 percent return for the year, while small-cap value funds turned in a slightly lower 12.47 percent return.
Among growth funds, small-cap funds still lead, with a 7.03 percent return for the year compared with a 2.3 percent return for large-cap growth funds.
"The [large-cap] funds are doing well but the money's not going there," Roseen said. "We still have the reluctancy to give up on small-caps. That could be a little performance-chasing."
Despite an as yet tepid response from some investors, observers say large-cap funds could be due for an injection of cash.
John Coumarianos, a mutual fund analyst at fund-tracker Morningstar Inc., said smart investors moving into large-cap stocks and funds aren't chasing the Dow's performance or blithely turning away from small-caps but are instead hunting individual bargains.
"The investors we like the best just tend to turn over one rock at a time. On a more fundamental basis, these businesses look like they present the most compelling bargains."
Coumarianos said funds like the Yacktman fund, which is up 12.82 percent this year, and the Oakmark fund, with its 13.04 percent increase for the year to date, are proving that large-cap value funds can be wise investments.
He says funds such as Yacktman are well run because they have snapped up large-cap stocks that were bargains in recent years when investor attention was elsewhere.
"He's actually got a number of these steady-Eddie growth stocks in his portfolio," Coumarianos said of Don Yacktman, who runs the eponymous fund.