Jan. 5, 2004 — As the bull market moves into 2004, will large-cap stocks lead? Rosanne Pane, Standard & Poor’s mutual fund strategist, expects them to in 2004 since large-cap stocks tend to do better in the second year of a bull market, and when the dollar is declining.
“At some point, large-caps will turn around,” said John Montgomery, manager of Bridgeway Ultra Small Company Fund (BRUSX). Because of this year’s sizable gains, he feels his small-cap fund “got the equivalent of two decades of outperformance this year.” As a result, Montgomery has scaled back his personal exposure to small-cap stocks to 42% of total assets from 68%.
“It gets harder in 2004,” said Peter Bourgeau, assistant manager of Smith Barney Large Cap Growth Fund/A (SBLGX). After this year’s rally, Bourgeau believes few broad areas of the market can absorb sizable inflows. As a result, he expects the energy, consumer, and pharmaceutical sector to outperform. He also expects dividend-paying companies will do very well. “The dividend story is by no means played out,” Bourgeau said. Last year, Smith Barney Large Cap Growth rose 46.7%
Ron Muhlenkamp, manager of Muhlenkamp Fund (MUHLX), feels “the catch-up bounce is over,” although he expects that stocks will still outperform bonds in 2004. Due to widespread overcapacity in the economy, Muhlenkamp says investors will need to focus on sector leaders based on revenues. Last year, Muhlenkamp Fund was the third best-performing large-cap value offering, gaining 48.1%.
This year’s market gains won’t be as strong as last year’s market, agrees Nick Galluccio, manager of TCW Galileo Small Cap Value Fund/I (TGSVX). “The easy gains have been made,” he said. In general, the first 12 months of a recovery are the most robust, according to Galluccio. Last year, TCW Galileo Small Cap Value soared 63.8%.
“Next year, stock pickers will do better than the broad market,” forecasts Alexander Motola, manager of Thornburg Core Growth/A (THCGX). Despite these challenges, Motola feels stock prices aren’t high given low interest rates. Motola also expects that corporate cost cutting will continue to fuel higher earnings. A large-cap blend offering, Thornburg Core Growth rose 56.5% last year.
2003: A Good Year