Growing Pains

Investor confidence wilts in the second quarter as tumult and confusion create a sideways market

Your Money

July 18, 2004|By ANDREW LECKEY

Those lyrics from the Temptations in 1970 aptly describe the current scenario.

The situation in Iraq, the presidential election, differing views on the economy, rising interest rates and criminal convictions of chief executives have muddled our collective brain. In the case of mutual funds, scandals in which high-rollers received secret trading deals have made investors even more wary.

Amid the turmoil, the average U.S. diversified stock fund managed to eke out a 0.84 percent gain in the second quarter of 2004 and a 3.86 percent increase for the first half of the year, according to Lipper Analytical Services. Markets started strong in January and tapered off as issues became more muddled.

Diversification has proved the wisest strategy for a year of confusion. Mid-cap and small-capitalization value funds excelled, while large-cap growth funds sputtered. Natural resources and telecommunications funds rose, as science and technology funds stumbled. World stock funds saw Japanese funds zoom and gold-oriented funds crash.

"The investor is largely just looking at performance numbers, so a sideways acknowledged Jeff Tjornehoj, research analyst with Lipper in Denver. "Flows into mutual funds will probably continue to be positive but not overwhelming."

about the remainder of 2004.

market will be understandably nervous the next couple of months," said Alberto Vilar, portfolio manager of Amerindo Technology Fund in New York. "But the fourth quarter."

The Amerindo Technology Fund was tops in the second quarter with a 25.64 percent gain and third in the first half with a 32.65 percent increase.

(IMCL), eBay Inc. (EBAY), Yahoo Inc. (YHOO) and Gilead Sciences Inc. (GILD). His top five holdings represent 55 percent of his portfolio, which he describes as a "Porsche" investment for baby boomers with diversified portfolios.

go up enough to cut off recovery," said Vilar. "Because emerging technology is going to become a bigger part of the economy, investors should have a portion of their holdings in it."

Some experts contend turbulent times require active fund management. "I David R. Bagby, portfolio manager of UMB Scout Small Cap Fund, up 10.3 percent in the second quarter. "Overall stock market performance was close to zero the first half of this year, which is in keeping with most presidential election years, and should trend higher the rest of the year."

Emphasizing companies with market capitalization under $1.5 billion, Inc., an oil and gas exploration company acquired by a Canadian firm, and BHA Group Holdings Inc., a pollution control-maker acquired by General Electric Co.

"Investors in all sizes of companies have become more conscious of balance sheets, good financing and cash earnings," said Bagby. "This fits into our own methodology."

The resurgence of downtrodden wireless stocks made a difference in the first half of the year. However, as choppy trading in recent days has proved, there are caveats.

"I would warn that the wireless industry is incredibly volatile on a shortterm basis, so you would not want this to be your only mutual fund," said Brian Younger, portfolio manager of Fidelity Select Wireless, up 25.18 percent in the first half. "We offer a pure play for investors excited about telecom and wireless."

Fifty-four percent of Americans own a cell phone, Younger pointed out, and minutes of usage have increased. Demand for faster networks and upgraded equipment continues to boost prices of wireless stocks, which were at depressed levels for some time.

Inc. (MOT), Ericsson Telephone (ERICY) and Nextel Communications (NXTL).

Andrew Leckey is a Tribune Media Services columnist.

In the second quarter of 2004

Amerindo Technology "D" (ATCHX)

Based: New York

Assets: $152 million

Performance: Up 25.64%

Load: None (no sales charge)

Minimum initial investment: $2,500

Phone: 888-832-4386

ProFunds Ultra Internet (INPIX)

Based: Bethesda

Assets: $66 million

Performance: Up 11.33%

Load: None

Minimum initial investment: $5,000

Phone: 888-776-3637

UMB Scout Small Cap (UMBHX)

Based: Kansas City, Mo.

Assets: $76 million

Performance: Up 10.30%

Load: None

Minimum initial investment: $1,000

Phone: 800-996-2862

Fidelity Select Defense & Aerospace (FSDAX)

Based: Boston

Assets: $304 million

Performance: Up 10.03%

Load: None

Minimum initial investment: $2,500

Phone: 800-343-3548

In the first six months of 2004

ProFunds Ultra Wireless (WCPIX)

(See second-quarter information at left)

Performance: Up 37.12%

American Heritage (AHERX)

Based: New York

Performance: Up 33.33%

Assets: $1 million

Load: None

Minimum initial investment: $2,500

Phone: 212-397-3900

Amerindo Technology "D"

(See second-quarter information at left)

Performance: Up 32.65%

Fidelity Japan Smaller Companies (FJSCX)

Based: Boston

Assets: $1.29 billion

Performance: Up 27.27%

Load: None

Minimum initial investment: $2,500

Phone: 800-343-3548

Fidelity Select Wireless (FWRLX)

Based: Boston

Assets: $53 million

Performance: Up 25.18%

Load: None

Minimum initial investment: $2,500

Phone: 800-343-3548

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