Highlights of Fund Performance
Here are some highlights from fund performance data for the second quarter and first half:
* Value-oriented funds again outshone growth funds, particularly in the small-cap and mid-cap stock sectors. The average mid-cap value fund gained 1.9% in the quarter, compared with a 0.7% rise for the average mid-cap growth fund, according to fund tracker Morningstar Inc.
In the first half, mid-cap value was up 6.2%; mid-cap growth was up 4.6%.
* The top-performing fund sector in the quarter was natural resources. As oil prices hit record highs, the average natural resources fund rose 3.3% in the quarter and 10.3% in the half.
Over the last five years natural resources funds have surged 11.5% a year, on average.
Some analysts say energy probably will remain a good investment for years to come.
But “when you’ve had this kind of run, it can be dangerous to jump in now,” said Russ Kinnel, director of fund analysis at Morningstar.
* Real estate funds, off 5.6% in the quarter on concerns about rising interest rates, still rose 5.5% for the half, thanks to sharp first-quarter gains.
* Emerging-market stock funds also were hit by rising rates. If higher rates mean a slower U.S. economy, that could mean less export business for emerging-market economies.
Fear of a slowdown in China’s economy also hammered the emerging-market sector. Funds that invest in Pacific region shares, excluding Japan, slid 9.7% in the quarter, on average.
* Foreign stock funds in general were poor performers in the quarter, hurt in part by a pickup in the dollar’s value, which reduced the value of foreign shares when translated into dollars.
The average foreign large-cap growth fund lost 2% in the quarter but was up 2.5% in the half.
* Gold stock funds, off 18.4% in the quarter, were the period’s biggest losers. They were down 19.5% in the first half. But that followed huge gains in recent years: The average annual appreciation of the funds in the last five years was 16.8%.
John Hathaway, manager of the Tocqueville Gold fund in New York, which fell 17.8% in the half, said gold was hit in part by the dollar’s recovery. Gold had benefited in recent years as the dollar weakened, as some investors sought an asset they figured would hold its value.
As the dollar rebounded somewhat in the quarter, some investors dumped gold, Hathaway said. The metal slid from $428.80 an ounce in New York on April 1 to $375 by May 13. But gold has been rising again in recent weeks, and jumped $5.50 to $407.80 an ounce Thursday.
Hathaway said investors didn’t need a “doomsday” outlook to believe that gold could continue to shine. If the U.S. economy slows modestly, and the rising inflation pressures of the first half don’t dissipate quickly, many global investors could sour on U.S. assets and the dollar, and turn to gold, he said.
* Among bond funds, rising interest rates and fear of the Fed left most bond categories with losses in the quarter. The average long-term government bond fund had a negative “total return” of 4.9%, as declining principal values of older bonds more than offset interest earned.
Corporate junk bond funds lost 0.7% in the quarter. But junk bonds often look more attractive to investors as the economy strengthens, because default risk declines, analysts note.
One winning category in the fixed-income sector: funds that buy bank loans. They are a bet on rising interest rates, because the rates on the loans tend to adjust quarterly, said Andrew Clark, an analyst at fund tracker Lipper Inc. in Denver.
