April 2, 2003 — Despite the fog of war, are domestic equity funds poised for a spring thaw?
First quarter 2003 results for U.S. stocks funds may be negative, but March results look more hopeful. While several recent upticks turned out to be bear market rallies, market observers feel the latest gains may signal a broad turnaround.
“The wild card is Iraq, but we’re looking for an improving investment climate by year end, ” says Sam Stovall, Standard & Poor’s chief investment strategist. On the positive side, Stovall notes the S&P 500/Barra Growth index is down a modest 0.83% for the first quarter, suggesting that large-cap growth stocks may be spearheading market gains.
With the bear market over three-years old, Stovall thinks investors may feel the time is ripe for a turnaround. Once the war in Iraq is over, which he believes will be in about six to eight weeks, the investment picture should be brighter, and clearer. Looking past the war, many investors will focus on an improving economy and attractive valuations, Stovall said.
“Nobody is commenting on the positives, but the U.S. economy will probably be up 1% to 2% in the first quarter, and interest rates are at 40-year lows,” said Kevin Wenck, manager of Polynous Growth Fund/A (PAGFX). With inflation at record lows, Wenck feels there is little likelihood of broad market declines this year.
Doug Foreman, manager of TCW Galileo Aggressive Growth Equity Fund/I (TGMCX) said stocks have gotten “ridiculously cheap” over the last few years as fundamentals have improved in several sectors, including technology. In many cases, tech companies surviving the recession are in “better positions today than they’ve ever been,” Foreman said.
Low valuations suggest the market is entering a period of “above-average equity returns,” said Bill Nygren, manager of Oakmark Select Fund/I (OAKLX). Stock picking and asset allocation will be the key to performance over the next five years, he predicts. Oakmark Select was the seventh best-performing mid-cap value fund in the first quarter, dipping 0.5%.
Jim Oberweis, manager of Oberweis Micro-Cap Portfolio (OBMCX), said growth stocks have “fallen to exceptional values.” Over the next few years, Oberweis expects rising profits to fuel broad market gains. He predicts that the S&P 500 will rise 8% to 10% this year. Oberweis Micro-Cap was the third best-performing small-cap growth fund in the first quarter, gaining 6.5%.