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Portfolio > Mutual Funds > Equity Funds

Domestic Equity Funds -- July 2003 Review

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Aug. 5, 2003 — Domestic stock funds have rebounded across the board so far this year as a pending economic recovery is fueling widespread market gains, according to several professionals.

“A rising tide lifts all boats,” said Sam Stovall, chief investment strategist of Standard & Poor’s. He notes that historically, all sectors of the S&P 500 are up in the initial phases of a bull market, and that this year’s market has followed the long-standing pattern.

This year’s market has been “a very traditional bear to bull market transition,” said Bob Turner, manager of Turner Funds Concentrated Growth (TTOPX). Although growth stocks have led this year, Turner notes cyclical stocks have been particularly strong, spurring value stocks. Turner Concentrated Growth, a large-cap growth offering, rose 39.8% this year through July. The tech sector, where “everything tends to be cyclical,” added Turner, has fueled increases for growth funds.

Technology provided the biggest gains this year for AIM Emerging Growth Fund/A (EMEAX), said co-manager Jay Rushin. The fund overweighted tech due to expected earnings acceleration in a rising economy. Earlier this year, the managers became more aggressive, focusing on economically sensitive holdings within the technology, consumer discretionary, and health-care sectors. A mid-cap growth offering, AIM Emerging Growth was up 29.0% this year through July.

Along with cyclicals, stocks of emerging companies have outperformed this year in both value and growth categories, noted Camille Humphries, associate manager of MFS Mid Cap-Growth Fund/A (OTCAX). The “more speculative” stocks have seen the biggest rebounds this year, she pointed out. This development is “surprising,” Humphries added, since investors generally favor “quality” names after bear markets. The MFS fund has particularly benefited from biotech and technology stocks, including Genzyme Corp-Genl Div (GENZ), Genentech Inc (DNA), Expedia Inc. (EXPE), and VERITAS Software (VRTS). This year through July, MFS Mid-Cap Growth rose 24.2%.

Indeed, this year’s rally has benefited aggressive investors, said Steve Schoepke, vice president of research and development at SunAmerica Asset Management. He points to strong results for Fred Alger Management, one of the three sub-advisors for SunAmerica Focused Lrg-Cap Grth/A (SSFAX). Schoepke notes that Alger tends to have high returns during periods of great volatility. SunAmerica Focused Large-Cap Growth rose 23.9% so far this year through July.

Gains in the growth category this year have been strongest among small- and mid-cap funds, with small-cap growth funds leading all domestic equity fund categories. Small-cap growth funds rose 23.9% on average this year through July. In a growing economy, smaller companies tend to have higher sales, which disproportionately benefit their bottom lines relative to larger companies, noted Standard & Poor’s Stovall.


Currently trading at “fairly attractive valuations,” small-cap stocks could continue to outperform “for a while longer,” said Stovall, since they tend to do well for at least one year after the start of a market rebound. However, he cautions that third quarters typically are difficult for the overall market. Gains for the third quarter may also be muted since the previous quarter was so strong, Stovall added.

AIM’s Rushin thinks the market is entering a “classic slowdown,” with a mild selloff possible in the third quarter. With a “pretty bullish outlook, however, he thinks this pause is likely to be short term. The manager believes companies have been issuing earnings guidance based on low economic growth, so any pickup will spur higher stock prices.

“Healthy skepticism” for this year’s market may be appropriate, said Rob Donahue, co-manager of Salomon Brothers Srs Fds:Capital/A (SCCAX). As of June 30, Donahue said his fund was positioned to benefit from a “buoyant” environment, with a 12% cash position to take advantage of future opportunities. He cautions that economic growth may not be as broad based as some expect. A large-cap value offering, Salomon Brothers Capital rose 20.9% this year through July.

While the economy will gradually improve, a double dip “doesn’t make any sense” given sizable monetary and fiscal stimuli, said MFS’s Humphries. She expects gains will spread from smaller-cap issues to mid- and large-cap stocks as the market stabilizes.

The growth and value segments of the market will probably show similar gains, said Kathy O’Connor, manager of Eclipse Funds Mid-Cap Value (ECGIX). Investors will look for growth while staying careful about valuations due to past losses, she predicts. “The dispersion between value and growth won’t be significant for some time,” O’Connor said. Eclipse Mid-Cap Value rose 16.6% this year through July.

Indeed, Grant Cowley, manager of Schroder Capital US Large Cap Equity/Inv (SUSEX), agrees that “the value versus growth dichotomy has run its course.” While growth may have “a little edge” going forward, Cowley still has “modest expectations” for the U.S. equity market due to excess capacity in the economy. A large-cap blend portfolio, Schroder Capital US Large-Cap Equity gained 20.3% this year through last month.

– Bill Gerdes

Fund Investment StyleAverage Returns:

2003 Through

7/31/03 (%)

Large-Cap Growth +15.55%

Large-Cap Value+12.80%

Large-Cap Blend+13.41%

Mid-Cap Growth+19.11%

Mid-Cap Value+15.86%

Mid-Cap Blend+18.19%

Small-Cap Growth+23.86%

Small-Cap Value+19.85%

Small-Cap Blend+22.88%

Domestic Equity Funds*+16.64%

S&P 500+13.72%

Fund Investment StyleAverage Returns:

July 2003 (%)

Large-Cap Growth +2.74%

Large-Cap Value+1.46%

Large-Cap Blend+1.84%

Mid-Cap Growth+3.32%

Mid-Cap Value+2.72%

Mid-Cap Blend+3.34%

Small-Cap Growth+5.71%

Small-Cap Value+4.52%

Small-Cap Blend+5.71%

Domestic Equity Funds*+3.01%

S&P 500+1.76%

Domestic Equity Funds* — 2003 Returns Through 7/31/03

Best PerformersReturns (%)Worst PerformersReturns (%)

Large-Cap GrowthReynolds Fund (REYFX) +70.5%Midas Special Equities Fund (MISEX) -1.9%

Large-Cap ValueHillman Aggressive Equity+31.4%Rainbow Fund (RBOWX) -12.4%

Large-Cap BlendThornburg Core Growth/A (THCGX) +43.4%Howard Capital Appreciation Fund (HEFGX) +2.6%

Mid-Cap GrowthLegg Mason Inv Tr:Opportunity Tr/Prim (LMOPX) +39.6%T O Richardson Sector Rotation Fund (TRSRX) -2.9%

Mid-Cap ValueNeuberger Berman Focus/Investor (NBSSX) +33.6%Lord Abbett Mid Cap Value Fund/A (LAVLX) +8.1%

Mid-Cap BlendFidelity Leveraged Company Stock (FLVCX) +49.3%Old Westbury Capital Opportunity Fund (OWCOX) +4.6%

Small-Cap GrowthApex Mid Cap Growth Fund (BMCGX) +130.6%Frontier Equity Fund Portfolio (FEFPX) -46.2%

Small-Cap ValueDreyfus Growth & Value Fds:Small Co Value Fd (DSCVX) +40.9%GE Small Cap Value Fund/A (GASCX) +7.2%

Small-Cap BlendBridgeway Ultra Sm Company Port (BRUSX) +50.1%PF AIM Aggressive Growth Fund/B (PFBGX) +10.0%

Domestic Equity Funds* — July 2003 Returns

Best PerformersReturns (%)Worst PerformersReturns (%)

Large-Cap GrowthReynolds Fund (REYFX) +11.0%AXP Growth Fund/A (INIDX) -1.1%

Large-Cap ValueNational Asset Management Core Equity Fund (NAMEX) +4.8%Rainbow Fund (RBOWX) -7.6%

Large-Cap BlendPapp Focus Fund+8.2%AdvisorOne Clermont Fund/N (CLERX) -2.0%

Mid-Cap GrowthIPO Plus Aftermarket Fund (IPOSX) +8.7%Legg Mason Inv Tr: Opportunity Tr/Prim (LMOPX) -3.1%

Mid-Cap ValueRoyce Fund Select (RYSFX) +6.9%Kinetics New Paradigm Fund (WWNPX) -1.5%

Mid-Cap BlendStrong Adv US Sm/Mid/A+11.6%Yacktman Focused Fund (YAFFX) -2.3%

Small-Cap GrowthHenlopen Fund (HENLX) +17.4%Frontier Equity Fund Portfolio (FEFPX) -9.7%

Small-Cap ValuePacific Advisors: Small Cap Fund/A (PASMX)+12.4%ABN AMRO Veredus Aggressive Growth Fund/N (VERDX) -1.0%

Small-Cap BlendTCW Galileo Small Cap Value Fund/I (TGSVX) +9.4%PIF Partners SmallCap Value/J (PCVJX) +1.6%

*Excluding sector and balanced funds.

Source: Standard & Poor’s. Total returns include reinvested dividends. Data as of 7/31/03.


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