The Ups, Downs of Mutual Funds : Quarter’s Hot Performers Went From Bad to Best
One of the great truths of Wall Street is that what is hot today will probably be freezing cold tomorrow. And nothing could better underscore the point than second-quarter mutual fund results released Tuesday by Lipper Analytical Services.
The quarter’s hot performers: gold and precious metals funds. These are largely the same funds that plunged in the first quarter when stock prices soared.
Strategic Investments’ gold fund fared the best, posting a 34.39% return during the second quarter of 1991. US Gold Shares ranked No. 2, with a 21.28% return, while Strategic Investments’ silver fund ranked third, boasting an 18.95% gain.
“This is what happens when you manage a sector fund,” said Edmund Serfaty, portfolio manager for US Gold Shares. His fund ranks among the top performers this quarter but has also been among the worst in previous periods. “Your performance is either shining or tarnished. There is no middle ground.”
The quarter’s big losers: those once hot, now stone-cold environment, computer and growth stock funds. Schield’s Progressive Environment fund fared the worst, losing 15.89% of its value during the quarter. Fidelity Select Computer was the second-worst performer, with a negative 15.13% return.
What caused this reversal of fortunes?
“I think the second quarter was a correction to the exuberance of the first quarter,” said A. Michael Lipper, president of Lipper Analytical.
Indeed, during the first three months of 1991, the stock market was reacting to the U.S. allies’ successes in the Persian Gulf. Technology and aerospace companies did particularly well when previously untested high-tech weaponry helped the allied forces win a decisive victory against Iraq in a matter of weeks.
Stocks also performed well during those months because the Federal Reserve seemed set to continue lowering interest rates. Lower interest rates tend to help economic growth and corporate profits.
However, the picture has become notably gloomier in the past several weeks. Inflation and interest rates have started picking up. And corporations have started to reveal dismal earnings reports.
In tenuous economic times, gold prices tend to rise and shares of gold mining stocks perform even better. Gold mining stocks are also getting a boost from an improving political situation in South Africa, Serfaty said.
South African gold mine stocks have suffered during the past several years, largely because of economic sanctions imposed by governments that objected to the country’s racial segregation policies, called apartheid.
But now, as South Africa dismantles the few remaining apartheid laws, there is some hope that the economic sanctions will be lifted. Such an action could boost the share prices of South African businesses.
Another group with a strong performance during the second quarter of 1991 was the paper and forest products segment, according to the Lipper data.
This industry tends to rise and fall in four- or five-year cycles that hinge on how much paper can be produced each year, said Robert Chow, fund manager at Fidelity Investments in Boston.
Paper supplies vary widely from year to year, largely because producers often buy new and more efficient equipment at roughly the same times, Chow added. That creates a glut in the market and causes paper prices to fall.
But demand eventually catches up, and prices firm. Before it is all over, the call for paper far exceeds the industry’s ability to produce it, and prices for both paper and paper company stocks rise sharply, according to Chow.
Chow said he believes that the industry is just now starting to ease out of its overproduction. By 1994, the stocks of paper companies should hit their peaks, he predicted.
“Paper stocks will outperform the market over the next three or four years,” he said. “I can almost guarantee it.”
The prognosis is far less rosy for computer companies, according to Chow, who also manages Fidelity’s Select Computer fund--one of the second quarter’s worst performers.
“Technology stocks tend to go down every single summer,” he said. “You would think people would come to expect it, which would make things even out . . . but every year June rolls around and there’s a selloff.”
This year, the summer technology selloff started early--in April, he added. And it was probably exacerbated by dismal earnings reports coming out of industry giants such as IBM and Compaq.
Chow is not overly optimistic about the prospects for the group. But he believes that some well-run computer companies have been unduly savaged. Their share prices are likely to soar when the industry pulls itself out of the dumpster, he said.
Overall, only seven the 24 industry groups tracked by Lipper gained ground during the quarter. Gold funds gained 8.04% on average; financial services funds picked up 3.51% and income funds--which generally invest in bonds--rose 1.15% in value during the quarter, according to Lipper.
Meanwhile, the quarter’s worst performers were environmental funds, which fell 7.13% on average; science and technology funds, which lost an average of 6.49% of their value; and European region funds, which fell 5.76%.
Mutual Fund Performance Percent change in appreciation plus reinvested income and capital gains.
QUARTER ENDED JUNE 30
Top Performers
Strategic Investments: 34.39%
US: Gold Shares: 21.28 Strategic Silver: 18.95 Van Eck: Intl. Investors: 16.21 Fidelity Select Paper & Forests: 13.94 Enterprise: Precious Metals: 13.18 Freedom Inv.: Regional Bank Fund: 12.56 Fidelity Select Precious Metals: 12.23 FAM Value: 11.46 US: World Gold Fund: 9.85 S&P; 500 (dividends reinvested): -0.23 Average general stock fund: -0.86 Worst Performers
Schield: Progress. Environment: -15.89%
Fidelity Select Computer: -15.13 Schield: Value Portfolio: -13.84 Equity Strategies: -13.32 T. Rowe Price Science & Tech.: -12.61 Hartwell Emerging Growth: -11.91 Seligman Commun. & Information: -11.59 Shearson Small Capitalization Fund: -11.29 Transamerica Capital Appreciation: -10.98 Merrill Growth Inv. & Return: -10.55 YEAR ENDED JUNE 30
Top Performers
Fidelity Select Biotechnology: 49.74%
Fidelity Select Health: 44.86 Fidelity Select Medical: 43.26 Financial Portfolio: Health Fund: 41.49 Oppenheimer Global Biotechnology: 31.66 Twentieth Century: Ultra Investors: 30.07 Phoenix Multi-Portfolio: Cap. Apprec.: 27.48 AMEX: Equity Growth Fund: 26.22 Equity Portfolio: Growth Fund: 24.84 Vanguard Special: Health Care: 24.14 S&P; 500 (dividends reinvested): +7.38 Average general stock fund: +5.17 Worst Performers
Bull & Bear Special Equities: -43.50%
Steadman Oceanographic: -40.30 Steadman American Industry: -32.70 Strategic Gold/Minerals: -29.95 GAM: Europe Fund: -28.42 Steadman Associated Fund: -27.50 Bull & Bear Capital Growth: -26.03 USF&G; OTC: European Emerging Co.: -25.12 Bruce Fund: -25.03 US 80s: 80s Foreign Growth & Income: -24.85 FIVE YEARS ENDED JUNE 30
Top Performers
Financial Portfolio: Health: 201.56%
GT Global Japan Fund: 168.45 Oppenheimer Gold & Special Minerals: 150.95 Delaware Group DelCap: Concept I: 142.30 GT Global Pacific: 130.92 First Investors Global Fund: 130.15 DFA Group: Japan Small Company: 129.77 Vanguard Specialized: Health Care: 124.92 Franklin Gold Fund: 124.76 IDEX Fund II: 123.43 S&P; 500 (dividends reinvested): +75.55 Average general stock fund: +49.09 Worst Performers
Strategic Gold/Minerals: -62.76%
Steadman Oceanographic: -61.04 Steadman American Industry: -55.21 44 Wall Street Fund: -44.18 Steadman Associated Fund: -34.06 Steadman Investment: -28.14 American Heritage Fund: -27.43 Quantum Fund: -27.04 Merrill Special Value; Class A: -20.31 Fidelity Select Brokerage: -16.70
GROUP PERFORMANCE (period ended June 30 ) Fund Category (No. of Funds) Quarter Year Five Year Gold Oriented Funds (37) +8.04% -5.85% +48.42% Financial Services (9) +3.51 +12.13 +27.49 Income (13) +1.15 +7.85 +46.36 Specialty/Miscellaneous (31) +1.00 +2.33 +45.54 Pacific Region (18) +0.29 -5.33 +115.26 Equity Income (71) +0.27 +5.76 +45.07 Balanced (61) +0.07 +7.74 +51.19 Option Income (9) -0.09 +4.80 +47.26 Flexible Portfolio (52) -0.24 +6.00 +40.87 Growth and Income (215) -0.38 +6.10 +55.11 Utility (22) -0.89 +7.69 +44.76 Growth (274) -1.08 +5.07 +51.12 Capital Appreciation (141) -1.39 +3.89 +44.46 Small Company Growth (90) -1.41 +4.85 +36.81 Global Flexible Portfolio (13) -1.62 +0.32 +47.80 Global (51) -1.75 -5.70 +49.77 International (68) -2.69 -10.01 +57.54 Health/Biotechnology (9) -2.73 +31.81 +114.81 European Region (22) -5.76 -16.99 +46.59 Science and Technology (21) -6.49 -0.43 +47.80 Environmental (7) -7.13 -9.74 +11.22 S&P; 500 (dividends reinvested) -0.23 +7.38 +75.55 Average general stock fund -0.86 +5.17 +49.09
Source: Lipper Analytical Services
