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Portfolio > Mutual Funds > Equity Funds

Stocks Slammed by High Oil Prices, Rising Rates... And Then Came Katrina

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Reflecting a stock market that turned negative amidst rising energy prices in August, the average domestic equity fund retreated 0.9% for the month, versus a 1.1% loss for the Standard & Poor’s 500 Index.

All domestic equity style categories ended August in negative territory. Small-cap growth funds ranked last, losing on average 1.4%, while all-cap value portfolios showed the narrowest decline, edging down 0.4%. Value-oriented funds suffered slightly less than their growth counterparts, declining 0.7%, versus a loss of 0.9% for growth funds. However, year-to-date, all style categories are in the black, with the mid-cap value showing the best performance (up 6.4%).

August’s top-performing individual equity fund, the $62-million Scudder Commodity Securities Fund/A (SKNRX), soared 9.2%. This fund invests in both the commodities markets directly (through the use of GSCI-linked notes, as well as derivative instruments) and in the stocks of companies that find, develop, or produce commodities. Launched in February of this year, the fund is managed by Theresa Gusman, Terence P. Brennan, and Jeffrey Saeger of Deutsche Asset Management.

As of June 30, the Scudder fund had 56% of its assets invested in energy and 42% in materials. The top five holdings comprised Exxon Mobil (XOM), 4.4%; Dow Chemical (DOW), 2.3%; Shell Transport & Trading Co. PLC, 2.2%; BP p.l.c. (BP), 2.2%; and Chevron Corp. (CVX), 2.0%.

While the energy sector flourishes amidst historic high crude oil prices, the remaining parts of the market are worried about the impact of these high prices on overall economic growth. Indeed, aside from the booming energy sector, all of the S&P 500 GICS Sectors posted broad losses for the month, with materials (-5.3%), telecommunication services (-4.8%), and consumer discretionary (-4.2%), incurring the biggest declines.

At the very end of the month, hurricane Katrina pounded the Gulf of Mexico coast with devastating force, causing catastrophic damage and thousands of estimated deaths in Louisiana, Mississippi and Alabama. The Insurance Information Institute estimates that claims arising from the hurricane could top $25 billion, potentially making it the costliest storm in U.S. history.

Despite the fears raised by Katrina, Standard & Poor’s Investment Policy Committee (IPC) believes the resilience of the U.S. equity markets in the face of the hurricane has been impressive. “We think equity prices may work higher in response to less than expected damage to oil facilities or the prospect of a quicker end to rate hikes.” The IPC currently forecasts that the S&P 500 Index will close the year at 1270, representing about a 5% gain for calendar 2005.

Looking forward, investors will likely keep their eyes focused on the price of oil. Crude oil futures reached as high as $70.90 on threats that Katrina would halt production in the Gulf of Mexico. Oil prices later pulled back after Washington announced it would release supplies from the nation’s Strategic Petroleum Reserve. Standard & Poor’s and Global Insights project that oil prices will trade as high as $70-$75 over the near term, but close the year near the pre-storm target of around $62 and decline to $52 by year-end 2006.

In addition, during August, investors weighed comments by Federal Reserve Chairman Alan Greenspan, who warned about the risks to the economy posed by the trade and budget deficits. He also warned that the housing boom represents an economic imbalance that could end badly for the economy. This came after sales of new U.S. homes soared by 6.5% in July to a record seasonally adjusted annual rate of 1.41 million.

The IPC is maintaining its year-end 2005 fed funds rate and 10-year note yield targets of 4.25% and 4.75%, respectively.

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

Fund Investment Style Average Returns August 2005 (%) Average Returns YTD (%)
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* — August 2005 Returns

Best Individual Performer

Returns (%)

Worst Individual Performer

Returns (%)

Large-Cap Growth Merrill Lynch Focus Twenty Fund/I (MAFOX)


Santa Barbara Group:Bender Growth Fund/C (BEGCX)


Large-Cap Value J Hancock Large Cap Equity/I (JLVIX)


Crawford Dividend Growth/C (CDGCX)


Large-Cap Blend Scudder Commodity Securities Fund/A (SKNRX)


PMFM Tactical Opportunities Port Trust/Adv (ETFEX)


Mid-Cap Growth Hennessy Focus 30 (HFTFX)


Ameritor Investment Fund (AIVTX)


Mid-Cap Value Nuveen NWQ Value Opportunity/A (NVOAX)


Aegis Value Fund (AVALX)


Mid-Cap Blend ProFunds:UltraShort Mid Cap/Inv (UIPIX)


Delaware Group:American Services/C (DAMCX)


Small-Cap Growth Sit Small Cap Growth Fund (SSMGX)


Bridgeway Fund:Ultra Small Company Fund (BRUSX)


Small-Cap Value CGM Focus Fund (CGMFX)


William Blair Mutual Fds:Value Discovery/C (WVDCX)


Small-Cap Blend ProFunds:UltraShort Small Cap/Inv (UCPIX)


Touchstone Micro-Cap Growth Fund/C (TCMCX)


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


New York Equity Fund (NYSAX)


All-Cap Value Fairholme Fund (FAIRX)


Matthew 25 Fund (MXXVX)


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


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