Suddenly, it’s 1997. Stock mutual fund values began 2003 at that year’s price levels after a crushing 20.84 percent loss in 2002.
Accounting scandals, bankruptcies and general economic uncertainty provided disillusioned investors with the worst mutual fund results since 1974 and a third consecutive year of negative returns. While value funds outperformed growth funds, they also suffered their third losing year of the past 28 years.
Gold ruled the mutual fund roost in 2002, as investors sought a safe haven and the U.S. dollar weakened. An average gain of 63 percent was turned in by funds specializing in gold-mining stocks.
“Gold funds could again be decent performers in this first quarter of 2003 because investors remain scared about confrontation with Iraq and the questionable short-term economy,” said Don Cassidy, senior research analyst for fund-tracker Lipper Analytical Services. “Longer term, however, if we go into a bull market and inflation isn’t significant, gold won’t do well.”
In a volatile fourth quarter, the average stock fund managed to gain 6.3 percent on the belief that prices had hit their low point and better times were ahead. Some fund sectors rose from the dead. While technology funds and telecommunications funds were more than 40 percent in the hole for the full year, each enjoyed fourth-quarter rallies.
“After the selling pressures in Internet-related companies of the last few years, we didn’t feel we were taking on much risk when we became a lot more aggressive beginning in late October,” said Ryan Jacob, portfolio manager of Jacob Internet Fund, up 60 percent in the quarter after some dismal years. “We increased our positions in companies that were unusually distressed.”
That fund’s shares of Openware Systems (OPWW) increased 224 percent in the quarter, while Aether Systems (AETH) rose 57 percent. Both are software companies. Riding those same trends, the respective Internet, wireless and telecommunications index funds run by ProFund Advisors became quarterly leaders.
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“With index funds, you get a pure play on sectors without any interjection of fund managers who might be wrong,” said Louis Mayberg, president of ProFund Advisors. “After so much carnage, many believed there was too much overreaction and a price bottom had been reached.”
Each ProFunds portfolio is weighted by market capitalization of individual stocks in a sector. The biggest holdings among the 40 stocks in ProFunds UltraInternet are Yahoo, eBay, Amazon.com, Check Point Software, BEA Systems, E*Trade, WebMD, Overture Services, VeriSign and Ameritrade.
The top-performing stock funds in the final quarter of 2002, according to Lipper, were:
– ProFunds Ultra Internet (INPIX); “no load” (no sales charge); $5,000 minimum initial investment; 888-776-3637; up 62.37 percent.
– Jacob Internet Fund (JAMFX); no load; $2,500 minimum; 888-522-6239; up 60 percent.
– ProFunds Ultra Telecommunications (TCPIX); no load; $5,000 minimum; 888-776-3637; up 55.02 percent.
– ProFunds Ultra Wireless (WCPIX); no load; $5,000 minimum; 888-776-3637; up 49.32 percent.
– Smith Barney Telecommunications Income (ATINX); 4.5 percent load; $1,000 minimum; 800-451-2010; up 38.23 percent.
While actual gold prices rose 25 percent in 2002, stocks of gold-mining companies were more forward-looking. They gained considerably more on the premise that precious metals prices will escalate, the dollar will slide, and mining will boom.
“Gold funds should play a relatively small role in individuals’ portfolios, perhaps 5 to 10 percent, because they’re volatile and tend to make big moves,” said Joseph Foster of Van Eck International Investors Gold, up 91.28 percent for the year. “However, we expect the supply of gold to decline for the first time in over 20 years, a trend likely to continue over the decade, which will drive up gold prices.”
The best results for the full year 2002 were turned in by the following funds:
– First Eagle SoGen Gold (SGGDX); 5 percent load; $1,000 minimum; 800-334-2143; up 106.97 percent.
– Monterey OCM Gold (MNTGX); 4.5 percent load; $1,000 minimum; 800-251-1970; up 93.25 percent.
– Van Eck International Investors Gold “A” (INIVX); 5.75 percent load; $1,000 minimum; 800-826-1115; up 91.28 percent.
– Gabelli Gold (GOLDX); no load; $1,000 minimum; 800-422-3554; up 87.20 percent.
– U.S. Global Investors World Precious Minerals (UNWPX); no load; $5,000 minimum; 800-873-8637; up 83.42 percent.