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Portfolio > Mutual Funds > Equity Funds

After the Storms

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Despite a late-month rally fueled by better-than-expected third-quarter GDP data, U.S. domestic stocks slipped in October. The strong economic numbers may have alleviated fears of the after effects of Hurricanes Katrina and Rita, but they could not lift domestic equities out of negative territory.

Among domestic stock mutual funds, all style categories edged down during the month, with larger-cap portfolios incurring somewhat narrower losses than mid- and small-cap ones. The average domestic stock fund shed 2.21% in October, somewhat worse than a 1.77% drop for the S&P 500, and a decline of 1.46% for the Nasdaq Composite.

“The equity markets have been hurt by worries over the impact of rising oil prices, inflation, and interest rates on corporate earnings,” said Rosanne Pane, mutual fund strategist at Standard & Poor’s. “Large-cap funds tend to do better in declining markets as investors avoid the smaller, more aggressive options.”

Year-to-date, however, the average domestic equity fund has risen 1.99%, while the S&P 500 edged up 0.94%, and the Nasdaq has dropped 2.53%.

U.S. investors face a number of concerns. Although energy prices have recently retreated, they still remain high — a barrel of crude settled at just under $60 at month-end — and could put a damper on longer-term economic health. Moreover, the nomination of White House economist Benjamin Bernanke as successor to Fed Chairman Alan Greenspan virtually guarantees that interest rates will continue to rise as the Fed seeks to clamp down on inflation.

The central bank has steadily enacted a series of 25 basis point interest rate hikes since June 2004, placing the Fed Funds rate now at 4.00%. The Fed will also meet on December 13 and January 31. Sam Stovall, Standard & Poor’s chief investment strategist, said “there is a possibility that the Fed will raise rates by 50 basis points at the December 2005 meeting, instead of the more measured pace of 25 basis points seen in the prior 12 meetings.”

However, U.S. corporate earnings remain robust. October operating earnings posted by companies in the S&P 500 have gained about of 14.2% on a year-over-year basis, setting a new record of fourteen consecutive quarters of year-over-year double-digit growth. Not surprisingly, energy components of the Index posted a phenomenal 60.3% year-over-year rise in operating profits.

Howard Silverblatt, equity market analyst at Standard & Poor’s, noted that the S&P 500 is expected to show 15% operating earnings growth in each of the next two quarters, extending the current record to sixteen straight quarters. But profits are expected to tail off thereafter. Standard & Poor’s forecasts a milder 10% year-over-year operating earnings growth in the second quarter of 2006.

Standard & Poor’s investment policy committee (IPC) currently recommends a defensive equity asset allocation “emphasizing sectors with high S&P Quality Rankings and earnings visibility such as consumer staples and health care.” Economically sensitive, cyclical sectors, the IPC added, such as consumer discretionary and materials are “unlikely to outperform ” until an end to the Fed tightening is seen.

Below is a list of the best- and worst-performing domestic stock funds according to style category for the month of October 2005 and the year-to-date period.

Fund Investment Style

Average Returns October 2005 (%)

Average Returns 2005 Through 10/31/2005 (%)

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* — October 2005 Returns

Best Individual Performer

Returns (%)

Worst Individual Performer

Returns (%)

Large-Cap Growth ProFunds:UltraShort OTC/Inv (USPIX)


Reynolds Funds Opportunity Fund (ROPPX)


Large-Cap Value Sequoia Fund (SEQUX)


ING Large Cap Value Fund/B


Large-Cap Blend Rydex Dynamic Funds:Tempest 500 Fund/A (RYTMX)


Flex-fund:Quantex Fund (FLCGX)


Mid-Cap Growth Morgan Stanley Capital Opportunity Trust/A (CPOAX)


Ameritor Investment Fund (AIVTX)


Mid-Cap Value TA IDEX Jennison Growth/A (ICASX)


ING Mid Cap Value Fund/A (IMVAX)


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




Small-Cap Growth Morgan Stanley American Opportunities/D (AMODX)


Chesapeake Aggressive Growth (CPGRX)


Small-Cap Value Royce Fund Select Investment Class (RYSFX)


Ameritor Security Trust Fund (ASTRX)


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


ProFunds:UltraSmall Cap/Svc (UAPSX)


All-Cap Growth Transamerica Premier Focus Fund/Inv (TPAGX)


American Heritage Growth Fund (AHEGX)


All-Cap Value Weitz Hickory Fund (WEHIX)


Legg Mason Opportunity Trust/Prim (LMOPX)


Domestic Equity Funds* — Year-to-Date Returns Through 10/31/05

Best Individual Performer

Returns (%)

Worst Individual Performer

Returns (%)

Large-Cap Growth Fidelity Advisor Dynamic Cap Apprec/Instl (FDCIX)


Reynolds Funds Opportunity Fund (ROPPX)


Large-Cap Value Neuberger Berman Partners/Investor (NPRTX)


Dreyfus Premier Select/J (THPSX)


Large-Cap Blend Jennison 20/20 Focus Fund/Z (PTWZX)


Wells Fargo Advtg Large Company Core/C (WLCCX)


Mid-Cap Growth Hennessy Focus 30 (HFTFX)


Ameritor Investment Fund (AIVTX)


Mid-Cap Value CGM Capital Development Fund (LOMCX)


Allianz Funds:OCC Renaissance/B (PQNBX)


Mid-Cap Blend Analytic Defensive Equity Fund/I (ANDEX)


Phoenix Earnings Driven Growth Fund/B (EDBEX)


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


Frontier MicroCap Fund (FEFPX)


Small-Cap Value CGM Focus Fund (CGMFX)


Ameritor Security Trust Fund (ASTRX)


Small-Cap Blend Schwab Small Cap Equity Fund/Select (SWSCX)


Calvert New Vision Small Cap Fund/C (CNVCX)


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


American Heritage Growth Fund (AHEGX)


All-Cap Value Diamond Hill Focus/A (DIAMX)


Neuberger Berman Focus/Trust (NBFCX)


*Excluding sector and balanced funds.

Source: Standard & Poor’s. Total returns include reinvested dividends. Preliminary data as of 10/31/05.


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