October 18, 2005

Mid- and Small-Cap Funds Still Lag Indexes Through Third Quarter

Actively managed mid- and small-cap mutual funds continued to underperform their relative Standard & Poor's benchmarks through the first nine months of 2005, where as most large-cap portfolios finished ahead of their respective indices, according to data from Standard & Poor's Indices Versus Active Funds (SPIVA) Scorecard.

The SPIVA data showed that 55.8% of large-cap funds beat the S&P 500 Index through the first three quarters of the year. By contrast, the S&P MidCap 400 Index outperformed 72.1% of mid-cap funds, which means that only 27.9% of mid-cap portfolios beat their bogeys. Also, the S&P SmallCap 600 Index outpaced 72.3% of small-cap funds during the the first three quarters of 2005.

"In 2005, energy, utilities and real estate issues led market returns," says Rosanne Pane, Mutual Fund Strategist at Standard & Poor's. "Actively managed large-cap funds benefited from their overweight in those segments relative to the S&P 500."

The SPIVA report also found longer-term results continue to highlight the superiority of indices over actively-managed funds. Over the past three years, the S&P 500 has outperformed 69.4% of large-cap funds, the S&P MidCap 400 has beaten 69.1% of mid-cap funds, and the S&P SmallCap 600 did better than 71.7% of small-cap funds.

Over the past five years, the S&P 500 has outperformed 63.6% of large-cap funds, the S&P MidCap 400 outpaced 77.5% of mid-cap funds, and the S&P SmallCap 600 beat 75.1% of small-cap funds.

"Over longer time horizons, we continue to observe indices outperforming a majority of active funds across most style boxes," says Srikant Dash, Index Strategist at Standard & Poor's. "We typically see indices beating at least 60% of active managers over five year horizons."

The report also revealed that so far in 2005, sector funds outperformed indices in six out of eight sectors. Utilities and REITS represented the two sectors in which most actively-managed portfolios fared poorly against their benchmarks.

Pane noted that "active sector funds were helped by their ability to invest globally, including investments in emerging markets." The complete third quarter 2005 SPIVA scorecard is available at www.spiva.standardandpoors.com.

Percentage of Active Funds Outperformed by Relative Benchmark*

Fund Category Comparison Index

Third Quarter 2005

Year-to-Date 2005

One-Year

Three-Year

Five-Year

All Domestic Funds S&P SuperComposite 1500

35.8

42.5

38.3

56.5

59.0

All Large-Cap Funds S&P 500

43.3

44.2

45.6

69.4

63.6

All Mid-Cap Funds S&P MidCap 400

41.4

72.1

67.9

69.1

77.5

All Small-Cap Funds S&P SmallCap 600

52.1

72.3

68.6

71.7

75.1

Large-Cap Growth Funds S&P/BARRA 500 Growth

39.7

43.1

37.5

50.9

71.1

Large-Cap Blend Funds S&P 500

40.5

42.7

46.0

76.9

68.7

Large-Cap Value Funds S&P/BARRA Value

50.8

46.8

53.6

84.5

43.9

Mid-Cap Growth Funds S&P/BARRA MidCap 400 Growth

22.3

66.0

53.1

51.8

78.5

Mid-Cap Blend Funds S&P MidCap 400

56.3

69.0

72.4

63.9

75.7

Mid-Cap Value Funds S&P/BARRA MidCap 400 Value

65.5

76.9

80.9

90.1

86.1

Small-Cap Growth Funds S&P/BARRA 600 SmallCap Growth

65.4

83.0

83.9

78.0

93.5

Small-Cap Blend Funds S&P SmallCap 600

55.3

71.3

65.7

73.8

76.6

Small-Cap Value Funds S&P/BARRA 600 SmallCap Value

35.6

51.3

47.9

61.5

57.1

All-Cap Growth Funds S&P SuperComposite 1500

22.3

37.5

30.3

53.2

50.0

All-Cap Value Funds S&P SuperComposite 1500

38.8

41.8

40.6

37.0

9.1

*For period ending Sept. 30, 2005.

Source: Standard & Poor's.

Contact Bob Keane with questions or comments at:" bkeane@investmentadvisor.com.
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