S&P: Domestic Stock Funds Fall Back Over First Six Months of 2005

July 6, 2005 (PLANSPONSOR.com) - Preliminary half-year data from Standard & Poor's shows that US stock funds fell 0.3%, international equity funds advanced by 0.57%, high-quality corporate bond funds were ahead 1.5% and high-yield bond funds increased 0.8%.

An S&P news release said that domestic equity funds performed well during the second quarter of 2005, despite a tough climate of persistently high crude oil prices and rising short-term interest rates that took their toll on the equity markets. The average portfolio gained 2.4% during the second quarter, versus a 1.2% return for the Standard & Poor’s 500 Stock Index. But that quarterly gain was not enough to offset the effects of a dismal first quarter.


Meanwhile, returns of foreign stock funds eroded for US investors as the dollar gained against foreign currencies in the first half of the year, according to S&P. Even though most global equity markets made modest gains in local currencies year-to-date, many have declined in dollar terms. For example, markets in the euro zone gained about 7% in local currency, but saw around a 5% drop in dollar terms.

The average international stock fund was ahead 0.57% for the first half of 2005, while the average global equity portfolio, which can also invest in US stocks, edged down 0.19%. In the April to June period, international stock funds rose 0.25%, while global stock funds picked up 1.4%.

With the US economy appearing to be on solid footing, with inflation in check, consumer confidence picking up, and short-term interest rates still at relative low levels, high-quality bonds delivered modestly positive results through the first half of 2005, according to the S&P news release.

The average government securities fund edged down 0.07%. In the second quarter, the average high-quality corporate bond fund rose 2.4% and the average government bond fund advanced 2.7%.

At the same time, Standard & Poor’s has found that volatility in the US speculative-grade market intensified in April and May, but appeared to be retreating in June. There were also concerns about the market’s ability to digest large batches of bonds from giant automakers General Motors and Ford Motor that were downgraded to junk status in May.

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