Tables Are Turned as ‘Value’ Flourishes, Tech-Heavy Funds Sag
“Round up the usual suspects,” the line from “Casablanca” goes.
That’s a good way to describe who’s at the bottom, and top, in terms of stock mutual fund performance over the last two months.
The accompanying charts show the biggest gainers, and losers, in three broad stock fund sectors, measured from March 10 through Friday by fund-tracker Morningstar Inc. in Chicago.
March 10 was the peak for the Nasdaq composite index--the last hurrah for the technology stock sector before its spectacular plunge in late March and early April.
Since March 10 the Nasdaq composite index is down more than 28%. The Standard & Poor’s 500 index of blue chip stocks, by contrast, is up 4.1%.
Not surprisingly the funds that have fared worst since March 10 include many that were heavily invested in high-risk tech shares--either domestically or abroad--and either by choice or by charter ended up riding stock prices down.
And among the biggest losers are funds of two management companies that have become well-known for their willingness to endure wild volatility in recent years: PBHG Funds and Van Wagoner Funds.
In other words, any shareholders of those funds who, amid the surge in the funds’ values late last year and early this year, assumed that their managers would protect them in a market slide have painfully discovered otherwise.
Meanwhile, among the funds that have performed best since March 10 are some of the most hard-core “value” funds--many of which have suffered terribly over the last year or more, as investors abandoned value stocks for high-flying growth stocks.
These funds, including Sequoia Fund, Oakmark I Fund and Seligman Large Cap Value, earlier this year were often held up as examples of funds that were clinging hopelessly to a value strategy in an era when investors wanted only growth stocks.
But as the tide turned in mid-March, the beaten-down stocks owned by these value funds suddenly were in demand as many investors desperately sought to reduce their risk levels, if they were going to stay in stocks at all.
The two-month trend, of course, doesn’t necessarily indicate the trend for the next year--or even the next two months.
Indeed, value stocks haven’t outperformed growth stocks for any significant period of time since the mid-1990s. The last five years, for the most part, have belonged to growth stocks, despite period hiccups in the growth sector.
Nor are owners of some of the biggest fund losers since March 10 likely to be terribly upset--at least, not if they bought earlier last year.
PBHG Select Equity fund, for example, still is up 139% from a year ago, even though it’s down 47.8% since March 10.
And despite the turnaround in many value funds, many still are down sharply from a year ago. Sequoia, for example, is off 16.6% from a year ago, even with its 22.5% gain since March 10.
But investors who are hopeful, or (in the case of tech stocks) fearful that the recent market action says a lot about what’s to come may find the names in these charts interesting as investment ideas--or as funds to avoid.
A closer look at some of the trends apparent from the winners and losers listed in the charts:
* Among funds that target large-capitalization stocks, the biggest winner since March 10 is ProFunds UltraShort OTC (phone: [888]-776-3637), up 44.7%.
But this is a fund for speculators rather than value-hunters: The fund is a bet on falling stock prices--specifically, falling prices among the Nasdaq 100-index stocks, which mostly are major tech stocks.
The fund uses “short selling” as well as options and futures contracts as it seeks to earn twice the inverse of the performance of the Nasdaq 100 index.
From March 10 through Friday, that index was down 23%--so the ProFunds UltraShort fund lived up to its billing.
And note: The fund’s net loss over the last year is 71.3%, as the Nasdaq 100 still is far above its level of a year ago.
* A surprising winner among large-cap funds: The Fidelity Select Food & Agriculture fund ([800]-544-8888), up 25.9% since March 10, as a fresh merger wave in the food business has juiced the stocks.
The food sector also is a value-stock play, many analysts argue. Many of the stocks, such as H.J. Heinz and Hershey Foods, have slumped since 1998 on worries about slowing growth and rising competition.
* Among large-cap fund losers since March 10, ProFunds shows up again--this time with its UltraOTC fund, which is the bullish counterpart to the UltraShort fund. The UltraOTC fund aims to be the Nasdaq 100 index on steroids--and thus has fallen 50.6% since March 10.
No. 2 on the losers’ list is Millennium Growth ([800]-535-9169), a fund that was stocked with many of the tech sector’s biggest winners over the last year. And despite its 50.9% drop since March 10, the fund is up 33.8% from a year ago.
* Winners among small- and mid-cap stock funds since March 10 include Longleaf Partners ([800]-445-9469), a mid-cap value fund run by the respected management team at Southeastern Asset Management in Memphis. It’s up 21.5% over the two months, though still down 13.6% from a year ago.
Earlier this year the fund reopened to new investors as it sought fresh cash to buy value shares.
Also on the winners’ list: Phoenix-Engemann Value 25 fund ([800]-243-4361), which at the end of last year had targeted such value-stock plays as B.F. Goodrich, Crown Cork & Seal and Fleetwood Enterprises. The fund is up 23.1% since March 10, and up 7% in the last three weeks alone.
* Among foreign funds, Longleaf management shows up again, this time at the top of the foreign winners’ list since March 10 with its Longleaf Partners International fund, up 13.7%.
Also near the top: Vanguard International Value [800]-662-7447), up 7.1% over the last two months.
* Among foreign-fund losers, most of the names on the list focus on small-company stocks, including technology issues. Many of the most speculative foreign tech stocks have tumbled along with U.S. tech shares since mid-March.
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Tom Petruno can be reached at tom.petruno@latimes.com.
