Tech Funds Disappoint Investors
NEW YORK (AP) _ Stock market volatility and a technology sell-off scared mutual fund investors this year, but not enough to drive them to the financial sidelines.
This year, fund investors _ like their peers who invest in individual stocks _ benefited if they looked beyond the tech sector, most notably to health care.
Mutual funds that concentrate on health-care stocks outperformed all other categories of big, diversified funds this year. Health care and biotechnology funds rose an average of 56.4 percent through Dec. 28, according to Lipper Inc., a Summit, N.J.-based firm that tracks mutual funds.
Financial experts say the 50 million American households that own mutual funds deserve kudos for not retreating from this year’s rocky market.
``With the buy-and-hold mantra being espoused now, individuals see downturns, but it’s the institutional side that has been panicking,″ said Vernon Lee, a financial planner who runs Lee Investment Consulting in Raleigh, N.C. ``Individual investors ... have learned to keep emotion out of the investing process.″
Health-care funds accounted for two-thirds of the year’s top 25 best performers, according to Morningstar, a Chicago fund analysis firm. The best one was Evergreen Health Care A, which posted a 120 percent gain.
``Health care is running on the fact that we are all aging,″ said Geoffrey Bobroff, president of Bobroff Consulting, a mutual-fund industry consulting firm in East Greenwich, R.I.
Investment experts say this year’s market owes much of its overall strength to mutual fund investors. Investments in U.S. equity funds totaled $4.3 trillion this year, according to the Investment Company Institute in Washington.
Many fund investors are in the market for the long term.
Jason Springer, a 35 year-old computer programmer for Procter & Gamble in Cincinnati, owns several mutual funds, some of which are held in a 401(k) retirement plan.
``If the market goes up, I’m happy. If the market goes down, I’m not happy, but the money stays there,″ Springer said.
Springer also said he reviews his funds and changes his fund allocations several times a year, ensuring that his holdings are spread across sectors and in funds of varying risks.
Funds that focus on other defensive sectors also were among this year’s best performers.
Financial services funds were second to health care, moving up nearly 28 percent, according to Lipper. Real estate funds came in third, at just over 27 percent.
The worst performing sector, Japanese stock funds, tumbled 34.85 percent. High-tech funds plummeted were the second-worst at 34.56 percent.
Investors’ move out of tech issues hurt growth funds, which invest stocks that reinvest dividends. Meanwhile, value funds _ which invest in stocks that provide dividend income _ had a better year.
Small-cap value funds advanced 18.8 percent, while small-cap growth funds fell 3 percent. Mid-cap value funds rose 17.6 percent at the same time that their growth counterparts _ last year’s top fund category thanks to the surge of Internet start-ups _ lost 7.7 percent. Large-cap value funds rose 2.2 percent, but large-cap growth funds fell nearly 14.8 percent.
``The year 2000 finally broke a string of growth years that were unprecedented,″ Bobroff said. ``Investors really do need to have a more realistic expectation than they had going into the year 2000 ... Ten to 12 to 15 percent annual returns are still quite good, but investors had that as a monthly expectation versus an annual expectation.″
Although 2000 wasn’t the year for technology funds, financial planners don’t recommend dumping them entirely. After all, they say, Americans are quite attached to their cell phones and computers.
What investors should do in 2001, or any year, is diversify their portfolios to include funds that hold companies of differing sizes and in a variety industries, said Lee, the financial planner.
``We’ve all learned our lesson with tech,″ he said. ``Nobody knows what’s going to happen next year. That’s why I say diversification is very much alive. You want to be exposed to all different sectors.″
End adv for yearend editions