The Associated Press
By Dunstan Prial
N E W Y O R K
— Third-quarter mutual fund performance was down virtually across the board.
Surprisingly, the only two fund sectors to see the kind of double-digit growth investors have come to expect in the 1990s were categories that have been pummeled through much of the decade — funds related to Japan and gold, according to Lipper Inc., a New York firm that tracks mutual fund performance.
The entire mutual fund industry got caught in the overall market downdraft that saw the Dow Jones industrial average shed 1,000 points, or 9 percent, during the final weeks of the quarter.
“We had a typical September, which has historically been a difficult time for stocks, and that took a lot of spark out of the mutual fund market,” said Robert Walsh, a portfolio manager with King Investment Advisors in Houston.
Reasons for the Fall
Walsh said three factors contributed to the third quarter downturn: fears that the Federal Reserve Board would raise interest rates for a third time this year to keep inflation at bay; concerns that Y2K computer bugs could hurt companies’ ability to do business; and the dollar’s recent slide against foreign currencies, especially the Japanese yen.
Consider some of the dismal performance figures: Diversified United States stock funds, whose portfolios include stocks from similar-sized companies but from a number of different industries, were down on average 5.37 percent; and sector funds, whose portfolios include stocks from the same industries, fell an average of 3.51 percent.
Within those categories, certain popular niches stood out for their dismal performances. For example, diversified funds that track the performance of the S&P 500 index fell an average of 6.35 percent. And funds that focus on financial services stocks fell 12.68 percent.
The science and technology fund group, which rose an average of 7.02 percent, was the only sector to record the kind of performances mutual fund investors have grown accustomed to in the 1990s.
Meanwhile, Japanese and gold oriented funds rose 22.78 percent and 19.21 percent, respectively.
Dollar Plunge Good for Japan
Japanese funds clearly benefited from the dollar’s decline against the yen. As the dollar plunged to three-year lows against the yen and Japan’s economy recovered from recession, many foreign investors pulled their money out of U.S. funds and put it into Japanese funds.
Pacific region funds rode the Japanese wave to an average 8.35 percent third quarter gain.
Latin American funds stumbled, however, losing an average of 10.25 percent on fears that economies in that region aren’t developing the types of cutting edge technologies, such as the Internet, analysts said. Other emerging markets funds fell 6.73 percent on average on similar concerns.
International gold stocks got an unexpected boost late last month when a group of European central banks decided to put a cap on their sales of gold bullion. The announcement triggered the biggest one day price increase for gold in 13 years, and pushed the price of South African gold stocks up an average of 15 percent.
World prices for the metal have been falling for two decades since peaking at $875 an ounce in January 1980 — a time when the U.S. inflation rate was in double figures, oil prices were rising rapidly and Soviet troops were entering Afghanistan. Gold has historically been a haven for investors in times of turmoil, but less so in recent years.
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S U M M A R Y
After getting hammered for the majority of this decade, gold and Japanese funds finally had a break-out week.
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