Sector Funds Tumble in 3Q01

September 28, 2001 ( - Sector funds failed to shine in the third quarter, with the average portfolio tumbling by 18% amid a weak economic outlook and pushed lower by the market sell-off in the wake of the recent terrorist attacks.

In contrast to the second quarter rebound that saw all sector funds increase, and with exception of gold, returns for the eight sector categories tracked by research firm Lipper were negative across the board over the three-month period.

Market Measures

Over the same period, the Dow Jones Industrial Average and the S&P 500 Index both lost 18% over quarter, while the tech-heavy Nasdaq shed almost a third of its value.

Tech Tumbles

Technology and telecommunications funds were the hardest hit, falling by 40% and 27% respectively, with profit warnings and earnings disappointments weighing heavily on the sector.

The better performing funds within the sector were those with smaller exposures to mainstream technology companies and the over supplied semiconductor industry. Handset makers saw a rise in demand following the terrorist attacks.

All that Glitters

On the other side of the scale, gold and real estate funds took smaller losses as investors migrated to these more defensive plays.

Real estate funds, which typically invest in real estate investment trusts, or REITS, suffered smaller losses than other sectors, losing only 5.9%.

Gold-oriented funds, considered a safe haven in troubled times, gained 1.2% for the quarter. Gold is Lipper’s only stock fund category that’s positive year-to-date. The average fund is up 13%.

Financial Matters

While brokerage stocks were weak throughout the three-month period, financial funds receding by 15%, and the sector badly hit by the attacks on the financial district, financial have still managed to outperform the average sector fund on a year-to-date basis, down 14% compared to a 30% drop in the average sector fund.

Sector Scores

Funds that invest in health care, which had increased by 50% in 2000 gave back much of these gains. The traditionally a defensive play, slipped 15% over the period and have lost a quarter of their value over the year.

Utility funds, the sector revamped by deregulation and technological change, fell 14.4% over the period, while natural resources funds dropped 22% on weaker energy prices at quarter close.