Domestic Equity Funds -- November 2004 Review

Signaling investor optimism, small-cap funds outperformed in November and so far this year, continuing their mutli-year lead. Although the bull market is entering its mature phase, when large-cap funds traditionally outperform, smaller-cap funds apparently gained from continued economic growth and attractive valuations.

Stovall notes that half of the 110 five star, or strong buy, stock recommendations by Standard & Poor’s equity analysts are for companies with market caps of less than $10 billion. With small caps attractive to momentum investors and to fundamental investors, “it doesn’t appear as if the market wants to bale out of small caps any time soon,” he said.

Thrifty Value Plays

While bullish on small caps, investors are also focusing on valuations, as seen in value funds’ outperformance across the market-cap spectrum in November, and so far this year through November. This trend is typical of mature bull markets, as investors become more concerned about valuations after earlier market run-ups.

Value funds have also gained as dividend-paying stocks have outperformed this year. Dividend-paying stocks, which are more likely to be value plays, have outperformed as investors seek yield to offset lower capital appreciation this year relative to others. Through November 29, dividend-paying stocks in the S&P 500 rose 14.85%, while non-dividend-paying stocks in the index were up 7.91%

Domestic Equity Funds* — 2004 Returns Through 11/30/04

Domestic Equity Funds* — November 2004 Returns

*Excluding sector and balanced funds.

Source: Standard & Poor’s. Total returns include reinvested dividends. Data as of 11/30/04.

Contact Bob Keane with questions or comments at: [email protected]