STOCK QUOTES     More market data...

Tired gains for mutual funds; risk-aversion strategies fared the best

By Michael J. Martinez
The Associated Press

E-mail this article Print this article Search archive Most read articles Most e-mailed articles

NEW YORK — U.S. mutual funds posted minimal returns in the second quarter, tracking the stock market's mediocre quarter overall, while international funds had negative returns as investors moved money into less-risky holdings.

According to fund-analysis company Lipper, U.S. diversified equity funds had an average return of 0.84 percent in the second quarter. Small-cap value funds led the way with a 1.85 percent average return, followed by Standard & Poor's 500 index funds with a 1.56 percent return. Large-cap funds of all kinds averaged about 1 percent returns.

Specialty funds had the poorest showing with a 2.19 percent negative return, while small-cap growth funds posted a 0.62 percent negative return, according to Lipper's final mutual-fund data for the quarter.

"You saw a lot of people move into large-cap and value funds in the quarter, outperforming small-caps and growth funds," said Michael Porter, senior research analyst with Lipper. "One of the major themes was that the defensive investors fared relatively well compared to more aggressive and risk-tolerant investors."

Specialty sector-based funds averaged a 0.86 negative return. Real-estate funds were the worst performer, posting a 5.62 percent negative return, followed by financial-services funds with a 2.68 percent negative return. Both sectors suffered as investors abandoned interest-rate sensitive stocks ahead of the Federal Reserve's decision to raise interest rates Wednesday.

"That was pure risk aversion," Porter said. "Interest-rate sensitivity really hurt real estate and financials. That's to be expected."

Natural-resources funds had the best returns with an average of 4.65 percent. Health and biotechnology sector funds averaged a 0.76 percent return.

International funds generally fared poorly with an average negative return of 2.41 percent. Gold-oriented funds fell off sharply with an 18.35 percent negative return. Asia-based international funds were also hit hard — Pacific funds had a 9.88 percent negative return, while China region funds saw an average 9.29 percent negative return. Investors also fled emerging-market holdings, as those funds had a negative return of 9.52 percent.

"The Pacific rim and emerging markets got hammered the worst, but they're among the riskiest asset classes to begin with," Porter said. "Given their two primary export destinations are China and the U.S., the prospect of a government clampdown on growth in China and a slowing U.S. economy would obviously have a negative impact."
 
The top individual performers for the quarter beat the market trends. While technology sector funds had negative average returns of 0.44 percent, the top performing fund was Amerindo's Technology fund, which boasted a 25.64 percent return, followed by Credit Suisse's Institutional Small Cap Growth fund with a 20.23 percent return, which bucked the small-cap trend. ProFunds' Industrial fund posted an 11.52 percent return, iShares' Dow Transportation fund had an 11.45 percent return and ProFunds' Internet fund had an 11.33 percent return.

Investors' abandonment of precious metals in the second quarter weighed heavily on that sector's funds, which populated the top five decliners for the quarter.

ProFunds' Precious Metals fund had a negative return of 26.81 percent, while AXP's Precious Metals A fund had a 22.49 percent negative return. U.S. Global Investors' World Precious Mineral fund posted a 22.05 percent negative return, Rydex Investments' Precious Metals fund had a 21.01 percent negative return, and U.S. Global Investors' Gold Shares fund rounded out the top five worst performers with a 20.81 percent negative return.