WHAT GOES UP – Q2 a Reversal of Fortune for Many Funds

July 3, 2000 (PLANSPONSOR.com) - Second quarter fund statements may raise a few concerns, as last year's killer categories took it on the chin in the second quarter. Telecommunications and science/technology funds in particular fell hard from last year's lofty levels, while biotechnology provided some new life.

For the quarter, telecommunications funds slid 14.6%, more than any other category according to Lipper – a sharp reversal from 1999’s 71.7% average gain.  Science/technology funds, which had risen a phenomenal 132.3% last year, slid 11.9% during the second quarter.

“Most funds appear to have received only flesh wounds. They’ve been hurt, but they haven’t been killed outright,” said Ed Rosenbaum, director of research at Lipper.

Some Good News

Several sector funds survived the quarter, including:

  • health/biotechnology funds, up 21.3% on average
  • real estate funds, up 13.5%
  • natural resources funds, up 5.9%
  • financial services funds, up 2.3%

Gains in the health/biotechnology sector were attributed to investors looking to invest in growth, while avoiding Internet-based investments.  Gains in biotechnology also fueled a 7.2% gain in the overall health-care performance, according to Morningstar.  Real estate and natural resource funds were on the rebound from last year’s depressed prices, while financial services surged late on hopes that the Federal Reserve might be through raising rates for the time being.

Lipper notes that funds focused on a broad array of growth companies suffered most during the quarter, falling 5.4% on average. Meanwhile, value funds seemed to be gaining some momentum.

Biotech Tops

Morningstar reports that the top U.S. stock fund in the quarter was GenomicsFund.com, which gained 41.35% in its first full quarter of operation.  In fact, four of the five top performers were specialty-health funds.  The single exception was American Eagle Capital Appreciation, which gained 33% during the period.  Still, the fund’s investments in health and services stocks outweighed losses in technology holdings.

On the downside, small growth fund Frontier Equity was the worst-performing fund, dropping 41.62%.  Three of the remaining five worst performers were in the specialty-technology category – all with losses exceeding 33% according to Morningstar.

Interest rate concerns weighed on emerging markets investments, dragging Third Millenium Russia down 33.08% and Lexington Worldwide Emerging Market down more than 32%, leading the list of worst performing international funds.  RS Contrarian topped the international list with an 11.48% return for the quarter. 

Bond funds were led by the funds focused on long-term bonds, boosted by the diminishing supply of long-term government debt.  Dreyfus Premier Real Estate Mortgage topped the list, returning 7.63% on its higher-grade bond investments.  At the other end of the spectrum was the PaineWebber High-Income A, which lost more than 10% during the quarter.

In the second quarter, the NASDAQ slumped 13.27%, the Dow was down 4.34%, the Russell 2000 down 4.05% and the S&P 500 dropped 2.93%.