Investing July 2, 2002

Gold, Real Estate Funds Outshine Stocks in Q2

July 2, 2002 (PLANSPONSOR.com) - Stock mutual funds fared miserably in the last few months, as accounting shenanigans, bankruptcies and bleak profit forecasts dragged shares lower and raised the possibility that 2002 will end in the red.
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The average diversified US stock fund, which invests in a variety of sectors, fell 12.2% in the second quarter, according to research firm Lipper Inc. Stock fund investors, data showed, lost a whopping $358 billion in the period.

In the first quarter, the average US diversified stock fund rose 0.43%.

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It will be hard for stock portfolios to climb into positive territory this year if present market forces continue to wreak their havoc. Halfway through 2002, the average fund already was 11.7% lower, the data showed. And, the dismal numbers come on the heels of similar drops in 2000 and 2001.

If there is a positive scrap in a heap of negative news, it is that the average stock fund fared slightly better than the benchmark Standard & Poor’s 500 Index, which dropped 13.7% in the quarter. Meanwhile, the Nasdaq composite index performed even worse, declining 20.1%.

Only a few categories of stock funds actually managed gains in the second quarter. Gold funds climbed 11.1% in the period, and real-estate portfolios were up nearly 5%, according to Lipper.

For other categories of stock funds, it was a nightmare.

Specifically, deeply troubled telecommunications funds plunged 27.3% in the quarter, as the sector’s companies struggled with heavy debt and others filed for bankruptcy. The multibillion accounting scandal at WorldCom Inc. added to the sector’s woes.

For the year, telecom portfolios are down almost 40%, according to the data. Science and technology funds were down 28.4% in the latest second quarter — the steepest decline for any sector, the data showed.

The past quarter marks the worst for US diversified stock funds since last year’s third quarter, when the average portfolio lost 17.5 % following the September 11 attacks, according to Lipper data.

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