OVER 99% OF STOCK FUNDS FINISH WITH BROAD LOSSES STOCK
FUNDS END WITH BROAD LOSSES
By Dolores Kong
The Boston Globe
More than 99 percent of pure stock mutual funds
suffered a loss in the quarter that ends today,
marking the broadest slump for equity funds since the
stock market crash of October 1987.
Technology funds, already beaten up, slid an average
of 40 percent, making it the worst three-month period
ever for that sector, according to statistics by
Lipper, a company that provides investment data and
Even value funds, which had been a safe harbor earlier
in the year, dropped more than 14 percent on average
in the third quarter, according to Lipper.
"It's pretty bad," said Andrew Clark, a Lipper
research analyst. "When it comes to the equity
markets, the issue there is simply one of fear and
uncertainty," especially after the Sept. 11 terrorist
But, Clark added, "I don't think what happened [in the
markets] since the attacks in Washington and New York
City is any change from what was happening earlier in
the third quarter," with economic data and investor
sentiment already leading the markets down. "It's
Some funds did make money for the period, however:
those that invest in bonds and gold, and bearish funds
that bet on the markets going down.
For the quarter, some taxable bond funds averaged a 3
percent return, and gold-oriented funds just over 1
percent, while bearish funds averaged 45 percent,
according to the Lipper data.
"This is the historic norm. When there's a slowdown, a
recession, the bond market tends to outperform the
equity markets," said Clark. "Gold is the flight to
quality, a safe haven. The bearish folks had been
doing well since July and August."
And funds that had a mix of stocks and bonds didn't
fare as poorly as those investing in pure equities,
with income funds, down only about 6 percent on
average, for instance, Clark said. That supports the
argument for diversifying across different investment
classes to moderate risk, he said.
But while short-term quarterly performance is worth
noting, Clark said that's not necessarily what you
base your long-term investment strategies on. Once a
professional trader himself, Clark is now a long-term
investor with his own money, and he tells individual
investors to think the same way.
"There are very few of us - I used to trade for a
living - that are good market timers," Clark said. "So
if your inclination is to bail, I would think twice
about that." That was the advice Clark gave last week
to a Boulder, Colo., meeting of the American
Association of Individual Investors.
"When there's confidence and trust in the US and the
US economy, and if you have the long view, there's no
reason to sell now," Clark said.
Mutual fund flow data suggest that some investors are,
indeed, selling now, particularly out of
growth-oriented equities. But the numbers also
indicate people are buying, especially US value and
"Value funds, down in August, actually attracted about
$7 billion in new money," said Avi Nachmany, director
of research for Strategic Insight, a fund tracking
company based in New York. Value funds invest in
stocks that are relatively low-priced, based on such
factors as earnings.
"Bond funds continue to sell," with cash inflows in
August totaling $14 billion in both taxable and
tax-free funds, Nachmany said. "That's the highest
number in many years."
But for the month of September, marred by the
terrorist attacks, Nachmany said he expects to see a
net redemption out of equity funds of at least 1
percent of assets, with more people selling out than
buying in. "It would be the largest amount for this
year," he said.
By contrast, the previous high monthly net redemption
for this year, in March, was about 0.5 percent. In
October 1987, when the stock market crashed, the net
redemption for the month was about 4.5 percent,
according to Nachmany.
The increase in redemptions in September is certainly
partly in reaction to the assaults on the World Trade
Center and the Pentagon. Some people may be redeeming
because they're unhappy with the results in one fund,
and want to shift the money into another.
Other people may be saying, "I can't handle this
anymore," Nachmany said.
But he, like Clark, warned people with long-term
investing horizons not to overreact in the short-term.
"Clearly, to the extent your time horizon is
reasonably long - if you buy for five years, 10 years,
15 years, 20 years - losses and gains are all paper in
nature," Nachmany said.
"Actually, rationally, this is the best time to
invest," Nachmany said. But, he acknowledged, "The
rational mind tells you to continue to invest, at the
same time your emotional mind tells you different."