1Q fund leaders may be turtles

Flashy gold, China funds could wind up breaking your heart

Your Money

April 16, 2006|By ANDREW LECKEY | ANDREW LECKEY,TRIBUNE MEDIA SERVICES

Investors may find it difficult to resist the swiftest stock mutual funds of early 2006.

A fast start attracts big and small money to funds and can set an investment tone for the entire year. Looking beyond the early hype, however, there's no certainty that the initial leaders will be in front at the end of the year.

Early fast starters have been gold-oriented and China region funds, each with an average gain of 20 percent in the first quarter, according to Lipper Inc. Next were Latin American and real estate funds, sprinting to increases of 17 percent and 14 percent, respectively.

These returns make the respectable 6.56 percent first-quarter advance of the average U.S. diversified stock fund seem almost turtle-like.

Yet this year's flashiest groups can be highly volatile and have proved over time that they can either lift or break the hearts of those who place bets on them. The price of gold, for example, has been climbing for months, but it has soared before, only to collapse.

Allotting more than a fraction of a portfolio to these early leaders is risky business, experts said.

"The success of gold and real estate funds indicates people expect inflation, which is probably not good for the economy and the market because interest rates will rise," said Donald L. Cassidy, senior research analyst with Lipper. "And the fact that three-quarters of recent new money has been flowing into world funds, rather than domestic funds, is not a vote of confidence for the U.S. stock market."

Early optimism about stock mutual funds can nonetheless deliver a yearlong boost.

Despite the unpredictability of Chinese politics, the market changes there appear to be the real deal, a middle class is developing and economic growth continues.

That made Oberweis China Opportunities Fund the first quarter's No. 1 stock fund, with a 38.68 percent gain, according to Lipper.

"It's fortunate for us to have such an exciting beginning, since the investment populace does tend to direct money to the top-performing funds," said manager James Oberweis, who emphasizes smaller up-and-coming stocks.

"While it would be unrealistic to expect stock appreciation to continue at this incredible rate, we think there will be above-average returns over the next 10 years."

Gold-oriented funds, true to their volatile track record, had a powerful January, slipped in February and roared back in March.

Benefiting were U.S. Global Investors World Precious Minerals Fund, the quarter's No. 2 fund, with a 37.8 percent gain, and U.S. Global Investors Gold Shares, placing No. 3, with a 34.95 percent increase.

Latin America's strongest month was January, but the funds then took a hit from political concerns.

Real-estate funds continued to move ahead despite dire forecasts, but real-estate stocks frequently are not held outside of real-estate portfolios and haven't benefited a vast number of investors.

Andrew Leckey writes for Tribune Media Services.

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