Global funds leading the way

Robust performance owed to a rebounding international economy

Mutual Funds

First-quarter Maryland report

April 11, 2004|By Paul Adams | Paul Adams,SUN STAFF

With their incomes rising along with their mobility, consumers throughout Russia and Eastern Europe are adopting the West's love affair with the cell phone. And that is making some U.S. mutual fund investors happy.

A study of 309 mutual funds managed by Maryland-based financial firms found that the top performer in the first quarter was a T. Rowe Price Group Inc. fund that focused on emerging markets in Europe and the Mediterranean, where investments in wireless phone stocks turned out to be particularly lucrative.

"The European Union and NATO are expanding, and for Eastern European countries, that's the promised land," said Russ Kinnel, director of fund research for Morningstar Inc., a fund-tracking firm based in Chicago. "To all of the sudden join a strong economy with a strong currency - that's of enormous value."

For the second quarter in a row, a rebounding global economy lifted international funds, which emerged as the top performers in an analysis conducted by Bloomberg News for The Sun. Real estate funds, which averaged a return of 11.9 percent, also scored high, though most gave up their gains last week after a favorable jobless report sparked speculation that interest rates will rise.

Overall, mutual funds averaged a return of 3.7 percent in the first quarter, or less than a third of the gains reported in the rollicking fourth quarter of last year, according to Lipper Inc.

Dept funds post gains

Debt funds also continued to post gains, as investors who had been on the sidelines in recent years jumped back into the market with an eye toward safety. The top performer among Maryland debt funds was the T. Rowe Price Inflation Protected Bond Fund, which returned 4.9 percent for the quarter.

Among equity funds, small-cap stocks again beat their large-cap counterparts, and international funds edged out domestic funds.

Small-cap value funds returned an average of 6.1 percent for the quarter, while large-cap value funds gained 2.3 percent. International small-caps gained 8.9 percent, while international funds as a whole returned an average of 4.5 percent, Lipper said.

It was a rough quarter for William H. Miller III, whose Legg Mason Value Trust Fund has beaten the S&P 500 Index for 13 straight years. The fund's institutional shares lost about 1 percent for the quarter.

The leader among Maryland equity funds was Price's Emerging Europe and Mediterranean fund, which climbed nearly 19 percent in the first quarter. MTS, Russia's biggest mobile operator, and VimpelCom, a close rival, were among the fund's biggest drivers, said Leigh Robertson, who helps manage the fund for T. Rowe Price in London.

Shares in MTS soared 58 percent in the quarter, while VimpelCom gained 41 percent. Turkcell, Turkey's leading cellular provider, saw similar gains.

"That was faster than the market expected," Robertson said. "They continue to show solid growth of subscribers."

The fund's holdings in Russia climbed 37 percent as a whole for the quarter, she said. Rising oil prices helped propel Russia's natural resource-based economy, leading to increased consumer spending.

Many overseas funds were aided by a weak dollar, but the effect was not as pronounced as in past quarters, said Tom Roseen, a senior research analyst with Lipper. For the quarter, the dollar fell against the yen but gained slightly against the euro. When all currencies are factored in, the dollar appreciated 2 percent in the quarter.

Soaring stocks in Japan

The rising yen didn't hurt Japanese stocks, which soared in the first quarter as economic reforms in Japan continued to take hold, helping to boost a domestic economy that has languished for more than 13 years. The rising Nikkei Stock Average has prompted analysts to ponder whether this might finally be the beginnings of a sustained rally in Japanese markets.

"We've started to shift our opinion and view on Japan," said Kurt Umbarger, a portfolio specialist for T. Rowe Price International. The firm's Japan Fund ranked second in the Sun-Bloomberg analysis, with a first-quarter gain of 15.9 percent.

Like many fund companies, Price has been bearish on Japan for years because of the island nation's reluctance to institute meaningful economic reforms. But the firm is starting to take a neutral view as the country's domestic economy shows further signs of life, Umbarger said.

Investors have been tricked before. Japanese markets have rallied on several occasions, only to come crashing back down as the global economy weakened and the country's exports declined. But many think this time might be different.

One major reason is China, which has emerged as one of Japan's largest trading partners. China's thirst for materials and goods gives Japan another market to rely on when demand falls in Europe and the United States.

Overdue reforms

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