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Portfolio > Mutual Funds > Equity Funds

Domestic Equity Funds -- Mid-Year 2005 Review

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Domestic equity funds performed well during the second quarter of 2005, despite a tough climate of persistently high crude oil prices and rising short-term interest rates. The average portfolio gained 2.4%, versus a 1.2% return for the Standard & Poor’s 500 Stock Index. But that quarterly gain was not enough to offset the effects of a dismal first quarter — year-to-date, the average domestic stock fund edged down 0.3%, while the Standard & Poor’s 500 Index slipped by 1.0%.

A number of factors contributed to the flattish mid-year results: crude oil futures continued their rise, recently spiking to a new record high of more than $60-per-barrel; and, as expected, the Federal Reserve just boosted its target for the Fed Funds rate by 25 basis points to 3.25%, signaling the potential for further rate hikes.

Standard & Poor’s Investment Policy Committee said it believes “the muted first half performance for stocks was the result of a projected slowdown in corporate earnings growth, the impact of record energy prices on consumer spending and the sustainability of the Fed’s rate-tightening program.”

Among style categories, growth-oriented funds outperformed their value counterparts during the second quarter of 2005 — the average growth fund advanced 2.9%, versus a 2.3% gain for the average value fund. However, value was supreme for the whole first half of the year — value funds gained 0.9%, versus a 1.0% loss for the average growth fund over the six-month period.

Mid-cap value funds represented the best performing specific fund category for the first half of the year, rising 2.4%, on average. Indeed, mid-cap funds in general bested their small and large-cap counterparts over the first half of the year — mid-cap funds gained 1.5% year-to-date, while small- and large-cap funds lost about 0.3% and 0.7%, respectively.

The top individual performer among mid-cap value funds, the Artisan Mid Cap Value Fund (ARTQX), rose 10.9% year-to-date. As of May 31, the $1.6-billion portfolio had 30.4% of its assets invested in financial services stocks, 27.5% in consumer discretionary and 21.8% in energy.

The overall top-performing individual fund for the mid-year period, the Rydex Dynamic Funds:Venture 100 Fund/H (RYVNX), is an index-tracking fund. With a 17.2% gain year-to-date, this fund seeks results that correlate to the inverse of the NASDAQ-100 Index.

With the U.S. stock markets seemingly meandering, much of the focus will likely be on corporate earnings going forward. Standard & Poor’s expects that companies in the Standard & Poor’s 500 index will show a 7.8% earnings growth for the second quarter of 2005, ending a twelve-quarter, double-digit winning streak. However, for the second half of the year, Standard & Poor’s expects earnings to pick up and for the Index to resume delivering double-digit gains, posting a 12.0% rise in the third quarter and an 11.0% climb in the fourth.

“The past twelve quarters of earnings growth have permitted companies to get their balance sheets in order, and create the largest cash reserve in the history of the Standard & Poor’s 500 Index,” said Howard Silverblatt, equity market analyst at Standard & Poor’s. “While earnings growth is slowing relative to the prior three years, the forward growth remains steady and is expected to produce record earnings for 2005.”

Jeff Knight, chief investment officer of global asset allocation for Putnam Investments, said that U.S. stocks have taken a big sideways meander through the first half of the year, adding that “this is part and parcel of the low return environment that investors now face.” Knight comments that buy and hold strategies are not suitable for such sideways markets and investors probably need a new recipe, incorporating a more global perspective.

Standard & Poor’s believes that U.S. stocks will stay in a trading range until investors get a clearer picture of the Federal Reserve’s interest-rate intentions. The Investment Policy Committee forecasts that the Standard & Poor’s 500 Index will close out the year at 1255 — representing about a 3.6% gain for calendar 2005 — and suggests investors focus on large, high-quality companies, with consistent earnings growth. The Committee adds “we believe the combination of still-healthy economy growth, an attractive market valuation and the eventual end to the Fed’s rate-tightening efforts will lead to an end-of-year rally in stocks.

Below is a list of the best- and worst-performing domestic stock funds according to style category for the second quarter and first half of 2005.

Fund Investment Style Average Returns 2nd-Quarter 2005 (%) Average Returns First Half 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* — First Half 2005 Returns

Best Individual PerformerReturns (%)

Best Individual Performer Returns (%) Worst Individual Performer Returns (%)
Large Cap Growth Rydex Dynamic Funds:Venture 100 Fund/H (RYVNX)


ProFunds:UltraOTC/Svc (UOPSX)


Large Cap Value Hillman Aggressive Equity Fund (HCMAX)


American Heritage Growth Fund (AHEGX)


Large Cap Blend Rydex Dynamic Funds:Inverse Dynamic Dow 30/H (RYCWX)


Wells Fargo Advtg Large Company Core/C (WLCCX)


Mid Cap Growth Hennessy Focus 30 (HFTFX)


Ameritor Investment Fund (AIVTX)


Mid Cap Value Artisan Mid Cap Value Fund (ARTQX)


Allianz Funds:OCC Renaissance/B (PQNBX)


Mid Cap Blend Westport Fund/I


ProFunds:UltraShort Mid Cap/Svc (UIPSX) -07.760


Small Cap Growth Fidelity Advisor Small Cap Growth/Instl (FCIGX)


Apex Mid Cap Growth Fund (BMCGX)


Small Cap Value CGM Focus Fund (CGMFX)


Corbin Small Cap Value Fund (CORBX)


Small Cap Blend Bridgeway Fund:Micro-Cap Limited Fund (BRMCX)


Ameritor Security Trust Fund (ASTRX)


All Cap Growth Permanent Port Family of Fds Aggressive Grth (PAGRX)


Reynolds Fund (REYFX)


All Cap Value Diamond Hill Focus/A (DIAMX)


Runkel Value Fund (RVFDX)


*Excluding sector and balanced funds.

Source: Standard & Poor’s. Total returns include reinvested dividends. Preliminary data as of 6/30/05.

Contact Bob Keane with questions or comments at: .


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