Market Trends: What’s In, What’s Out
Who made the big money in the first quarter--and who lost it? Here’s a look at some of the highlights, and lowlights, from global financial markets generally and the mutual fund industry specifically. Items in the lists of what’s in and what’s out may mark either the start of trends or the continuation of them. “Contrarian” investors, of course, might argue that the best place to be looking for moneymaking ideas today is on the out list, but it’s worth remembering that market trends often run for quite a while.
IN
Growth-stock picker Garrett Van Wagoner. A star in 1996, Van Wagoner’s “momentum” investing style fell deeply out of favor in 1997 and early ’98. But he roared back in the fourth quarter of last year and continued to pile up big gains in the first quarter--thanks to such tech holdings as America Online, Dell Computer and Microsoft.
Internet-heavy stock portfolios. They don’t make Morningstar’s fund lists because they aren’t old enough, but such Net-focused funds as Munder NetNet (up 54.1% in the first quarter) and Monument Internet fund (up 91.9%) demonstrated that Net mania hasn’t run its course.
Latin American stocks. A devastating currency devaluation in Brazil? No problem! Latin stock markets rallied anyway in the first quarter, rebounding from their collapse last year--when the average stock fund that focuses on the region plunged nearly 40%. The average first-quarter gain for the group: 11.3%. Mexican stocks were the leaders, helped by that economy’s ties to the strong U.S. economy and by the rebound in oil prices.
Japanese stocks. The country’s economic recovery is far from assured, but the stock market is betting heavily on it. The Japan Fund, the largest such stock fund available to U.S. investors, was up 15.7% in the quarter, more than twice the gain of the Dow Jones industrial average. The biggest gains were racked up by the smallest Japanese stocks: Fidelity’s Japan Small Company fund surged 41.9%. (It had lost 31.9% in the three years ended Dec. 31.)
The Young sisters--that is, Helen Young Hayes, manager of the Janus Worldwide fund, and sister Claire Young, manager of the Janus Olympus fund. Janus Worldwide remains one of the premier international funds, with a 6.8% first-quarter gain (versus 1.8% for its average peer). Janus Olympus, meanwhile, scored a 23.4% first-quarter gain, placing it at the top of the heap of U.S. large-growth-stock funds. Is smart investing genetic?
Fidelity Magellan. The largest of all U.S. stock funds (assets: $84 billion) is enjoying a renaissance under manager Bob Stansky. He steered the mega-fund to a gain of 33.6% last year (versus 28.6% for the Standard & Poor’s 500 index), then added 7.4% in the first quarter, beating the S&P; by more than two percentage points.
OUT
Precious metals funds. What’s so precious about gold anymore? Funds that invest in gold- and silver-mining stocks fell 3.9% in the first quarter, on average, compounding their 12.9% decline of last year. In fact, this group has been a money loser for 10 years now. Even an uptick in other commodity prices, such as oil, couldn’t help gold in the quarter. The market seems focused on the potential for the International Monetary Fund to sell some of its huge gold reserves to help pay off some poorer nations’ debts.
Smaller U.S. stocks in general. How long will this nightmare last? The average small-growth-stock fund sank 1.9% in the quarter; the average small-value-stock fund gave up a painful 9.6%. In 1998 overall, the average small-growth fund gained just 4.4%, while small-value slid 6.9%. What will bring investors back to smaller stocks? Perhaps only a crash in big stocks--but that almost assuredly would first take the smaller names down further.
Real estate-related stocks. The average mutual fund that owns real estate investment trust (REIT) stocks lost 4.9% in the quarter after slumping 15.9% in 1998. Rising interest rates probably didn’t help the REITs in the first quarter. And Wall Street may be worried that the real estate boom of the 1990s will inevitably give way to a bust, sooner rather than later. Still, with dividend yields north of 7% on many REIT stocks, a recent Prudential Securities report asked, “Are there any equity investors out there looking for yield?”
The Davis brothers. It’s not easy being a value investor in a market that loves only a handful of growth stocks. Chris Davis, who manages the Davis Funds’ New York Venture and Financial portfolios, squeezed out returns of 3.2% and 2.8% on those funds, respectively, in the quarter--respectable in their categories but far cries from the pace of years past. Brother Andrew had an even tougher time with his Real Estate and Convertible Securities funds, off 7.1% and up 1.7%, respectively.
Fidelity Equity Income fund. Investors who tolerated this giant’s subpar 12.4% gain last year were rewarded with a 2.4% rise in the first quarter, which beat the 1.1% gain of the average large-value-stock fund. Still, its sister fund, Fidelity Equity Income II (almost as large), topped it again, rising 2.7% in the quarter after advancing 22.9% last year.
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Japanese Revival
The smallest Japanese stocks have been the biggest gainers in recent months. The Nikkei over-the-counter stock index, annual gain or loss, and year-to-date gain:
Through Monday: +56.0%
Source: Bloomberg News
No Glitter
Gold’s price has been in decline through most of the low-inflation 1990s. Yearly closes and latest, per ounce:
Monday: $278.30
Note: Price is for near-term futures contract in New York.
Source: Bloomberg News
