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Downturn Survivors: Only 18 U.S. Stock Funds Show

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Aug. 23, 2002 — Like a tornado roaring through a cornfield, this bear market has left few stalks standing.

Out of 5,001 domestic equity funds (excluding sector and balanced funds), only 18 portfolios have positive returns this year through July. The few funds to escape this carnage generally did so by either shorting the market or by focusing on small-cap value stocks, the market segment suffering the least from the broad downturn.

One of the few success stories in the market slump has been among funds using hedging strategies since they make up four of the five funds with double-digit gains this year. With the broad market down so sharply, as seen in the S&P 500′s 19.9% loss, it’s understandable why shorting has been a successful strategy this year.

The only double-digit gainer that didn’t hedge, Royce Special Equity (RYSEX), is the leading small-cap value offering this year. Small-cap value funds make up nine of the eighteen funds with positive returns this year. This strong showing for small-cap value funds is in keeping with the broader fund world this year, where small-cap value funds are holding up best among the nine fund style categories. With a 10.9% loss this year through July, small-cap value funds are losing, on average, less than half that of the worst performing fund category, small-cap growth, which is down 27.2%.

Small-cap value was the least successful segment during the 1990s bull market, so it has been less hurt by investors’ current concerns about high valuations. Also since, the small-cap value category generally didn’t include as many technology or Internet stocks during the 1990s bull market as other fund categories, it wasn’t as affected when those sectors imploded.