Lipper: Third Quarter Ugly for Equity Mutuals

October 1, 2002 ( - Many market observers have been anticipating a dispiriting showing by mutual funds in the third quarter and, as it turns out, the picture is as ugly as they feared.

According to Lipper, virtually all of the 41 stock fund categories it follows made it out of the quarter with double-digit negative returns – even the formerly high-flying small-cap segment, an Associated Press report said.

Only one stock fund category in Lipper’s universe ended the quarter in the black — specialty diversified equity funds had a return of 1.3 %.

Investors unloaded shares for much of the quarter, increasing their selling during the past five weeks as a string of companies from McDonald’s to Electronic Data Systems warned of weaker third-quarter profits, Lipper said.

“At some point, investors can’t take it any longer. It became really difficult to hold on,” Lipper senior research analyst Don Cassidy told the AP.

Small Caps Tumble

Small-capitalization funds, which focus on smaller companies’ stock, and value funds, which concentrate on undervalued issues, were among the biggest losers after faring relatively well earlier this year.

Among US diversified funds, which include companies of varying size as well as both the value and growth strategies, the widest losses came from small-caps.

Small-cap growth funds had a negative return of 18.2%. Small-cap core funds, which include both growth- and value-oriented issues, had a negative return of 17.7%, while small-cap value funds had a negative return of 17.2 % Lipper said.

Analysts said small-cap funds also declined on fears that the economy was slipping back into recession. The reasoning is that larger companies would hold up better if a so-called double-dip recession occurred.

Large-Cap Losses Not as Steep

Meanwhile, large-cap funds, which had long been at the bottom as they worked off high prices from the late ’90s bull market, had smaller losses.

Large-cap value funds showed a negative return of 14.9 %. Large-cap core funds recorded a negative return of 13%, while large-cap growth funds turned in a negative return of 12%.

Sector-specific funds also had mostly double-digit declines, the biggest coming from science and technology funds, which had a negative return of 23.1%.

International funds pulled back in large part due to concerns about economic crises in such countries as Argentina and Brazil. Latin American funds fell the hardest, posting a negative return of 20%.