No matter how you cut it, losing $358 billion hurts.
That’s how much stock mutual fund investors lost during a grueling second quarter in which the average fund declined 10.89 percent in value.
Fed by corporate scandal and general mistrust of the markets, this decline has pummeled the 401(k) retirement accounts, college savings plans and nest eggs of average Americans.
Financial stress even in the best of times is a primary cause of tension in families. But the fact that stock funds are now sitting on a three-year negative return throws a lot of sunny investment projections out the window.
“We’ve got the problem of the declining dollar and the fact that earnings aren’t coming through at big, visible companies, so overall confidence has been pushed back,” said Don Cassidy, senior research analyst with Lipper Analytical Services, which tracks mutual funds. “Back during stock market mania, everything people heard seemed believable, but now nobody believes anything until they see it.”
Hit the worst in the second quarter were two painfully familiar fund groups: technology and telecommunications, each down more than 27 percent.
Ironically, the big winners among stock funds won by betting that the market, especially tech and telecom, would take a big fall. Rydex Venture 100 Fund, up 66.68 percent in the quarter to lead all funds, employs futures contracts and options to provide results that are the opposite of the Nasdaq 100 index. In fact, it aims to double the inverse of that index.
In this dismal year, the opposite of bad has been very good. Negative bets on the stock of the scandalized WorldCom (WCOME) telecom company and other tech firms paid off handsomely for the fund.
“Capital spending has all but dried up, hurting tech companies, but it has benefited this type of fund,” said Jim King, senior portfolio manager of Rydex Venture 100 and Rydex Arktos Investments, up 32.80 percent in the quarter.
The Prudent Bear Fund, up 35.18 percent in the quarter, shorted the stock of energy company Dynegy (DYN) and Internet firm Juniper Networks (JNPR). It also owned defensive gold and silver mining stocks, with Harmony Gold Mining Ltd. (HGMCY) up 17 percent and Goldcorp (GG) gaining 12 percent.
“We’re likely to have a longer-term bear market, which will broaden so the declining stocks going forward include some industrials, cyclical stocks and consumer stocks,” warned David Tice, portfolio manager of Prudent Bear Fund
The top-performing mutual funds in the second quarter included some that require significant initial investments, according to Lipper:
More Top Picks Closet Organizers
– Rydex Venture 100 (RYVNX), Rockville, Md., $139 million in assets; “no load” (no sales charge); $25,000 minimum initial investment; 800-820-0888; up 66.68 percent.
– ProFunds UltraOTC Investors (UOPIX), Bethesda, Md.; $208 million; no load; $15,000 minimum; 888-776-3637; up 66.01 percent.
– Prudent Bear (BEARX), Dallas; $300 million; no load; $2,000 minimum; 888-778-2327; up 35.18 percent.
– Rydex Arktos Investors (RYAIX), Rockville, Md.; $92 million; no load; $15,000 minimum; 800-820-0888; up 32.80 percent.
– Potomac OTC/Short (POTSX), Alexandria, Va.; $15 million; no load; $10,000 minimum; 800-851-0511; up 32.53 percent.
During the first six months of this year, investors sought safe havens for their money and funds investing in gold-mining stocks shone brightly.
“We don’t intend to run a gold fund forever, and when we think this bull market in gold is exhausted, we’ll ask the shareholders to liquidate the fund,” said Charles de Vaulx, portfolio manager of First Eagle SoGen Gold Fund, up 79.74 percent in the first half.
Historically, there’s an inverse relationship between the financial markets and gold, de Vaulx noted. As a result, if the stock market keeps getting weaker, it should bode well for the precious metal.
The best results in the first half came from the following funds:
– U.S. Global Investors World Gold (UNWPX), San Antonio; $50 million; no load; $5,000 minimum; 800-873-8637; up 92.08 percent.
– Rydex Venture 100; see above; up 82.20 percent.
U.S. Investors Gold Shares (USERX), San Antonio; $30 million; no load; $5,000 minimum; 800-873-8637; up 82.07 percent.
– ProFunds UltraOTC Investments; see above; up 80.51 percent.
– First Eagle SoGen Gold (SGGDX), New York; $62 million; 5 percent load; $1,000 minimum; 800-334-2143; up 79.74 percent.