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Portfolio > Mutual Funds > Equity Funds

Domestic Equity Funds -- May 2005 Review

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Following dismal April performance, domestic equity funds snapped back in May from downward pressure in first four months of the year. The average domestic stock fund advanced 4.5% for the month, versus a 3.0% gain for the S&P 500.

All fund style categories ended May in positive territory. Small-cap growth funds were the brightest stars, returning 6.5% on average for the month, while large-cap value funds trailed, but with a respectable 2.6% gain. Year to date, growth funds actually started to outperform their value counterparts for the first time, gaining 5.6% on average as of May 31, versus value funds’ 3.9% average return. Market sectors helping to boost monthly performance for funds were technology and consumer discretionary, which both posted strong gains.

At the top of this month’s review were a number of index-tracking funds, which seek to provide investment results that correspond to twice (200%) of the daily performance of benchmarks such as the Nasdaq-100 index. These funds employ leveraged to magnify gains and losses, resulting in greater volatility and risks, especially when the indices they track are concentrated in specific sectors such as technology. ProFunds:UltraOTC/Iv (UOPIX) gained 17.6% an outsized in May, as did Rydex Dynamic Funds:Velocity 100 Fund/H (RYVYX). Both track the Nasdaq 100.

May marked a sharp turnaround in almost all areas of the equity markets, noted Sam Stovall, Standard & Poor’s Chief Investment Strategist. “The defensive tone the market had been adopting since the beginning of the year was exchanged for a more optimistic one as investors felt the Fed was close to ending the rate tightening policy,” he said. Projected slow downs in global economic growth, the lack of inflation seen by recent CPI figures, energy prices averaging $50 per barrel, and the low yield on the 10-year note indicated investors were not too worried about the long term impact of inflation, he added.

Investors may mistake May’s performance as a shift to bullish from bearish, but Stovall believes neither the 5.8% year-to-date decline for the S&P 500 through late April, nor a March-only economic soft patch, should be construed as a either a bear market or recession. The month of May was a counter trend rally, Stovall explains, where “investors used good news as a reason to temper their bearishness and cancel out short selling contracts. But May has not reset the clock on how old the economic expansion/stock market advances are.”

After another Fed increase, overnight interest rates were raised by a quarter percentage point to 3.0% at the start of the month. Investors are seeking a conclusion to the rate tightening, but Standard & Poor’s Investment Policy Committee puts the year-end Fed funds rate at 4.25%, believing the “rate-tightening game” may go on for more than nine innings. “Once there is significant evidence that the Fed is finished increasing rates, investors will begin to adopt late cycle patterns,” said Rosanne Pane, Standard & Poor’s Mutual Fund Strategist. Typically, large companies perform better, while smaller companies tend to have higher growth rates.

Below is a list of the best- and worst-performing domestic stock funds by style category for May 2005.

Fund Investment Style

Average Returns May 2005 (%)

Large Cap Growth


Large Cap Value


Large Cap Blend


Mid Cap Growth


Mid Cap Value


Mid Cap Blend


Small Cap Growth


Small Cap Value


Small Cap Blend


All Cap Growth


All Cap Value


Domestic Equity Funds*


S&P 500-Stock Index


Domestic Equity Funds* — May 2005 Returns

Best Individual Performer

Returns (%)

Worst Individual Performer

Returns (%)

Large Cap Growth ProFunds:UltraOTC/Iv (UOPIX) +17.58 ProFunds:UltraShort OTC/Sv (USPSX) -15.25
Large Cap Value ING Mid Cap Value Fund/A (IMVAX) +10.42 Hartford Equity Income/C (HQICX) +0.34
Large Cap Blend Pin Oak Aggressive Stock Fund (POGSX) +10.85 Prudent Bear Fund (BEARX) -5.95
Mid Cap Growth AllianceBernstein Mid-Cap Growth/A (CHCLX) +10.04 Pacific Advisors:Growth Fund/C (PGCCX) +1.34
Mid Cap Value Fidelity Advisor Value Strategies/Instl (FASOX) +9.88 Federated Strat Value/A +1.58
Mid Cap Blend ProFunds:UltraMid Cap/Iv (UMPIX) +11.81 ProFunds:UltraShort Mid Cap/Service (UIPSX) -10.91
Small Cap Growth Apex Mid Cap Growth Fund (BMCGX) +15.38 Frontier Funds:Equity Fund Portfolio (FEFPX) -4.0
Small Cap Value ING Small Cap Value Fund/A (IVSAX) +10.55 Huntington Fds:Dividend Capture Fund/Inv B (HDCBX) +1.67
Small Cap Blend ProFunds:UltraSmall Cap/Iv (UAPIX) +12.81 Potomac Small Cap/Short/Investor (POSSX) -12.3
All Cap Growth Permanent Port Family of Fds Aggressive Grth (PAGRX) +9.47 New York Equity Fund (NYSAX) -0.9
All Cap Value Legg Mason Opportunity Trust/Instl (LMNOX) +8.46 Diamond Hill Focus/C (DHFCX) -0.36

*Excluding sector and balanced funds.

Source: Standard & Poor’s. Total returns include reinvested dividends. Preliminary data as of 5/31/05.

Contact Bob Keane with questions or comments at: .


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