Picking up the pieces

quarterly mutual fund report

Lackluster results mark another dismal period for investors. But there are some signs of hope.

April 12, 2009|By Hanah Cho | Hanah Cho,hanah.cho@baltsun.com

The two best-performing Maryland mutual diversified stock funds were boosted in the first quarter by their holdings in consumer-oriented stocks, such as Apple and Amazon.

Ellicott City-based Hussman Strategic Growth fund gained 7 percent while T. Rowe Price Group's New America Growth fund posted a positive return of 3.4 percent during the quarter.

That may be surprising, given declining consumer confidence in a deepening recession. But consumers are still buying, just not as much.

"Even though people seem to worry most about consumers, consumer spending has almost never declined materially on a year-over-year basis even in the current downturn," said John P. Hussman, the manager for his namesake fund, which also hedged its portfolio against the impact of market fluctuations.

The two funds were among only four Maryland-based diversified stock funds that made money in the quarter, according to data provided by Bloomberg News.

Of the 151 Maryland-based stock funds tracked by The Baltimore Sun, 18 posted positive returns: Besides the diversified equity funds, the rest were invested in specific market sectors, such as stocks of precious metal and science and technology-related companies.

The lackluster results reflect continuing woes for many investors, whose funds were clobbered last year amid a financial sector meltdown.

Tom Roseen, a senior analyst with mutual fund tracker Lipper Inc., said investors are likely feeling deja vu with another poor quarterly performance.

But Roseen pointed to some signs of hope in the quarter, including a March stock market rally, gains in durable-goods orders and more buyers returning to the housing market.

"I'm not being over-bullish on what the market is doing, but maybe we're seeing some footing," he added. "After what we've been through, being that funds were down 30 to 40 percent in a one-year period, we are seeing at least some softer punishment in the first quarter."

The average U.S. diversified stock fund lost 8.9 percent during the first quarter, according to Lipper. In contrast, the Standard & Poor's 500 Index dropped 11 percent, which includes reinvested dividends.

All types of value funds saw losses ranging from 10 percent to 15 percent, while funds invested in financial services and real estate posted negative returns of 24 percent and 30 percent, respectively, according to Lipper.

And few funds posted positive gains.

The exceptions included short bias funds, which gamble on the market falling, and funds invested in science and technology market segments, according to Lipper.

Of the 61 Maryland-based bond funds, 39 made money in the quarter.

Standouts were high-yield bonds, which invest in "junk" bonds and other risky debt. The leader was Price's Tax-Free High Yield fund, which gained 6.7 percent.

Lipper senior analyst Jeff Tjornehoj said some investors were willing to "dip their toes into the junky water" after many sought haven in bond funds focused on government debt last quarter.

"At a time when issuance in high-yields were really slow and people were very pessimistic ... for high-yields, what was left in the market was getting bought up, not hand over fist, but there was enough interest to keep the sector alive," Tjornehoj said.

Joe Milano, the Price manager who oversees the New America Growth fund, said he takes a long-term approach to investing because "certain things can break against one quarter and break for you in another quarter."

For instance, the fund, which invests in fast-growing companies, was helped by its large holding in high-end grocer Whole Foods Market, whose shares gained nearly 78 percent during the first quarter.

"The bad news is that last year, the stock did very poorly," Milano said.

Heading into the rest of 2009, Milano said he's not counting on the economy to improve much.

"I'm looking for companies that I think are operating in industries that can grow in that environment," Milano added. "If the economy is tough, that doesn't mean there is nothing that will grow."

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