How Stock Funds Held Up in the Pullback
Is any stock mutual fund safe these days?
In search of an answer, The Times asked Chicago-based fund tracker Morningstar Inc. to run a computer screen assessing the performance of U.S. stock funds in the latest market downdraft.
We wanted to know which funds have held up best--and which have suffered most.
The results are in the accompanying chart illustrating the 20 best- and 20 worst-performing funds in four major Morningstar categories: large-company growth, large-company value, small-company growth and small-company value.
To measure performance, we asked Morningstar to track the large-company stock funds from the peak in the blue-chip Standard & Poor’s 500 stock index, which occurred on July 17.
The small-company stock funds were tracked from the peak in the Russell 2,000 index of smaller stocks, which occurred on April 21.
The funds’ performance is listed through Wednesday. At that point, the S&P; index was down 8.6% from its peak, and the Russell index was down 16.8%.
Of course, the indexes merely provide benchmarks. The funds in this screen may not have peaked exactly on the dates of their respective indexes.
Morningstar’s fund universe includes about 95% of all stock funds. It did not include tiny or very new funds in the screen.
By Morningstar’s definitions, large-company stock funds typically focus on shares of better-known U.S. companies. Small-company stock funds typically focus on less-well-known shares with market capitalizations (stock prices times shares outstanding) of $1 billion or less.
Meanwhile, “growth” funds are those that tend to hold stocks of companies expected to show rapid earnings growth. They often carry lofty price-to-earnings ratios. Microsoft epitomizes the category.
“Value” funds are those that tend to focus on shares of companies that are out of favor or sell for lower valuations based on criteria such as P/E ratios.
Value investors believe that these shares will appreciate when the companies turn themselves around or when the broad market realizes their true worth. Philip Morris is a typical value stock currently.
Because the periods tracked are short, the chart should not be viewed as necessarily indicative of a fund’s long-term performance. This is simply a look at which funds have held up the best, and fallen the most, in this pullback.
Why have some funds held up much better than others? Some of the better performers have maintained high cash reserves recently, providing a buffer in the downturn--and a stash to tap for bargain-hunting.
Indeed, of the top-performing small-company growth funds, cash reserves were 12% on average at June 30. The top small-company value funds had 15% cash on average.
The worst-performing large-company growth funds, by contrast, had average cash of just 2.4%.
Funds that own high-dividend-paying stocks also may have held up better recently.
Stocks paying substantial dividends can provide safety and help smooth out the long-term performance of the shares.
One of the high-ranking large-company value funds in the chart, for instance, proudly calls itself the SunAmerica Dogs of Wall Street fund. The “Dogs of the Dow” stock-picking theory holds that the Dow Jones industrial average stocks with the highest dividend yields will outperform other blue-chip stocks over time.
Finally, the funds’ recent performance may well be a sign of the managers’ stock-picking prowess--or lack thereof. But blind luck also could be a factor.
In general, the more aggressive a fund’s investment strategy, the more it will suffer in market downturns. But such funds may far outperform others in rising markets.
The funds listed here may not continue to beat, or lag, the market. But they may at least provide a starting point for investors seeking less-volatile funds, beaten-down bargains--or to avoid big losers.
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Tested by the Downdraft
Morningstar screened its database for the best- and worst-performing U.S. stock mutual funds through Wednesday. Small-company funds are tracked from April 21, the date of the Russell 2,000 small-stock index peak. Large-company funds are tracked from July 17, the date of the blue-chip Standard & Poor’s 500 index peak.
LARGE GROWTH
Top Performers
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Pct. return from July 17 through Fund Wednesday Potomac OTC/Short +8.5% Jensen --5.6 Amcap --6.9 Delaware Tax Eff. Equity Instl. --7.1 DG Equity --7.2 Delaware Tax Efficient Equity C --7.2 Delaware Tax Efficient Equity B --7.2 Fidelity Adv. Equity Gro. Instl. --7.2 Delaware Tax Efficient Equity A --7.2 Fidelity Adv. Equity Growth A --7.2 Fidelity Adv. Equity Growth T --7.3 Fidelity Adv. Equity Growth C --7.3 Fidelity Adv. Equity Growth B --7.3 Rydex OTC --7.3 Golden Oak Growth Instl --7.4 Vanguard Index Growth --7.4 Regions Growth Invmt --7.6 CitiFunds Large Cap Growth --7.7 Reserve Large-Cap Val. Equity --7.7 Millennium Growth --7.7 Large-cap growth average --9.5
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Bottom Performers
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Pct. return from July 17 through Fund Wednesday ProFunds UltraOTC Svc --14.9% ProFunds UltraOTC Inv --14.9 Kemper Growth I --14.4 Kemper Growth B --13.2 Kemper Growth A --13.1 Kemper Growth C --13.1 Loomis Sayles Growth Instl --12.3 Delaware U.S. Growth B --12.0 Delaware U.S. Growth Instl --11.9 Delaware U.S. Growth A --11.9 MSDW Capital Growth Secs B --11.9 MSDW Capital Growth Secs C --11.9 MSDW Capital Growth Secs D --11.9 MSDW Capital Growth Secs A --11.8 Delaware U.S. Growth C --11.8 Pillar Equity Growth I --11.6 State Street Research Gro. B --11.4 Value Line Lvrgd. Gro. Inv. --11.4 First Amer. Large Cap Gro. B --11.4 State Street Research Gro. A --11.4 First Amer. Large Cap Gro. A --11.3
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LARGE VALUE
Top Performers
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Pct. return from July 17 through Fund Wednesday American Mutual --4.9% Clipper --5.0 Endowments --5.3 U.S. Global Investors Income --5.3 Smith Barn. Prem. Total Ret. A --5.7 General Securities --5.7 First Omaha Equity --5.7 Smith Barn, Prem. Total Ret. O --5.7 Smith Barn, Prem. Total Ret. B --5.7 Franklin Equity Income I --5.9 UAM TJ Core Equity Instl Svc --6.0 SunAmerica Dogs of Wall St. A --6.0 Franklin Equity Income II --6.0 Merrill Lynch Strategic Divid. A --6.1 Merrill Lynch Strategic Divid. D --6.1 Cutler Equity-Income --6.1 Merrill Lynch Strategic Divid. C --6.1 Merrill Lynch Strategic Divid. B --6.2 T. Rowe Price Equity-Income --6.2 Montgomery Equity Income R --6.3 Large cap value average --8.7
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Bottom Performers
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Pct. return from July 17 through Fund Wednesday Vanguard/Windsor --13.4% Phoenix Value Equity A --12.6 SouthTrust Core Equity --12.3 Neuberger & Berman Guard. --12.3 Neuberger & Berm. Guard. Tr. --12.3 WCT Equity --12.3 Neuberger & Berm. Focus Tr. --12.0 Neuberger & Berman Focus --12.0 New England Value C --11.6 New England Value A --11.6 New England Value B --11.5 New England Value Y --11.5 ICAP Equity --11.4 Salomon Bros. Opportunity --11.3 Standish Equity --11.3 USAA Growth & Income --11.2 SG Cowen Large Cap Value A --11.1 UAM NWQ Value Equity Instl --11.1 Babson Value --11.1 DLB Value --11.0 Standish Tax-Sensitive Equity --10.9
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SMALL GROWTH
Top Performers
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Pct. return from April 21 through Fund Wednesday American Heritage +6.4% Transamerica Pr. Sm. Co. Inv. +5.7 Janus Enterprise --1.5 Janus Venture --3.5 Van Kamp. Am. Cap Aggr. Gro. A --4.9 Van Kamp. Am. Cap Aggr.Gro. C --5.1 Van Kamp. Am. Cap Aggr.Gro. B --5.1 Delaware Trend Instl --5.1 Delaware Trend A --5.2 Delaware Trend C --5.4 Delaware Trend B --5.4 PaineWebber S/M Gro. Eq. --6.0 Value Line Special Situations --6.3 Kobrick-Cendant Emerg. Gro. --6.4 Brazos/JMIC Micro Cap Gro. --7.6 Navellier Aggr. Small Cap Eq A --7.9 Van Wagoner Post-Venture --8.0 Wasatch Micro-Cap --8.3 Brazos/JMIC Sm. Cap Gro. --9.4 Navellier Aggressive Micro Cap --9.8 Small cap growth average --15.8
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Bottom Performers
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Pct. return from April 21 through Fund Wednesday Dreyfus Aggressive Growth --28.7% Frontier Equity --27.7 Dreyfus Premier Aggr. Gro. C --25.7 Dreyfus Premier Aggr. Gro. B --25.7 Dreyfus PremierAggr. Gro. R --25.5 Dreyfus Premier Aggr. Gro. A --25.5 Robertson Steph. Micro Gro. A --24.3 State St. Res. Emerg. Gro. B --24.1 State St. Res. Emerg. Gro. C --24.0 Monetta --24.0 Oberweis Emerging Growth --23.9 State St. Res. Emerg. Gro. A --23.9 Flag Investors Emerg. Gro. B --23.6 Flag Inv. Emerg. Gro. Instl. --23.5 Flag Inv. Emerg. Gro. A --23.4 Cappiello-Rush. Emerg. Gro. --23.1 WPG Tudor --23.0 WPG Growth --22.9 Fremont U.S. Micro-Cap --22.7 Galaxy Small Co. Equity Ret A --22.5 Galaxy Small Co. Equity Tr --22.4
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SMALL VALUE
Top Performers
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Pct. return from April 21 through Fund Wednesday Weitz Hickory +1.5% Longleaf Partners Small-Cap --2.1 IAI Value --3.4 Concert Inv. Peachtree Gro. A --5.4 Concert Inv. Peachtree Gro. B --5.6 Royce Total Return --6.1 Meridian Value --6.1 FAM Value --6.2 FAM Equity-Income --6.6 Enterprise Small Co. Value Y --8.1 Enterprise Small Co. Value A --8.2 Enterprise Small Co. Value B --8.3 FMI Focus --8.3 Pennsylvania Mutual Inv --8.3 Shadow Stock --8.4 Pennsylvania Mutual Consult --8.6 Artisan Small Cap Value --8.7 Lexington SmallCap --8.8 Franklin Balance Sheet Inv. --9.1 Royce Premier --9.1 Small cap value average --15.8
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Bottom Performers
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Pct. return from April 21 through Fund Wednesday EquiTrust Value Growth --28.2% Bridgeway Ultra-Small Co. --28.1 Parnassus --26.6 Lighthouse Contrarian --26.1 Polynous Growth A --24.8 Robertson Stephens Part. C --24.1 Strong Small Cap Value --23.9 Robertson Stephens Part. A --23.7 Lazard Bantam Value Instl. --23.6 Heartland Sm. Cap Contrarian --23.5 CitiFunds Small Cap Value --23.2 Franklin Value II --23.2 Lord Abbett Res. Sm. Cap C --23.2 Lord Abbett Res. Sm. Cap B --23.1 Franklin Value I --23.1 Lord Abbett Res. Small Cap A --23.0 Vanguard Selected Value --22.8 Hotchkis & Wiley Small Cap --22.4 Pioneer Micro Cap B --22.3 Pioneer Micro Cap A --22.1 CrestFunds Spec. Eq. Inv. B --21.6
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