Wall Street's fourth-quarter rally gave stock mutual funds a solid performance for 2004, with small-cap equity funds and real-estate funds scoring some of the biggest returns. Large-cap growth equities and technology-focused...
NEW YORK — Wall Street’s fourth-quarter rally gave stock mutual funds a solid performance for 2004, with small-cap equity funds and real-estate funds scoring some of the biggest returns. Large-cap growth equities and technology-focused funds had the slimmest gains.
According to mutual-fund watcher Lipper, equity mutual funds as a whole averaged a 13.63 percent return in 2004, based on Thursday closes. That compares well to the Standard & Poor’s 500 index, the most common benchmark for mutual funds, which closed the year yesterday up 8.99 percent.
Small-cap value funds led all U.S. diversified equity funds with a 20.9 percent average return for the 52-week period ending Dec. 30, with small-cap core funds second, boasting a 18.49 percent return. The Russell 2000 index, which measures a broad spectrum of small-cap stocks, rose 17 percent for the year.
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Large-cap growth funds — expected to be a top performer in 2004 — had the lowest returns at 7.4 percent, but still managed to outperform the Dow Jones industrials, which rose 3.15 percent in 2004.
“It was a very solid year, especially considering how many analysts felt this would be a mild year,” said Martin Vostry, research analyst for Lipper. “The biggest surprise was the continued strength in small-caps. A lot of people thought large-cap growth would overtake small-caps this year.”
Returns in specialized equity funds varied widely. Real-estate funds topped the list with a 32.03 percent return for the year, as low interest rates continued to aid the sector. Sharply rising oil prices helped natural-resources funds post average returns of 29.8 percent.
Weakness in technology stocks, particularly semiconductors, pressured tech-focused funds after 2003’s blockbuster returns. Tech funds saw meager returns of 4.01 percent on average.
“If it hadn’t been for a very strong fourth quarter, tech funds would have seen negative returns this year,” Vostry said. “Tech just isn’t going to produce the kind of returns that it did in the 1990s.”
International mutual funds did exceptionally well, posting average returns of 17.66 percent as emerging markets in Asia and Latin America outperformed Wall Street and the falling dollar boosted returns. Latin American funds had the biggest returns, at 38.19 percent, while European funds had returns of 22.07 percent, largely due to the currency exchange. International gold funds were the only mutual funds to see negative returns on average. Gold-oriented funds had negative returns of 8.81 percent for the year.
“International funds outperformed U.S. funds for the third year in a row, but if you take away the currency movements, they’re probably more in line with U.S. returns,” Vostry said.
A European-based exchange-traded fund, iShares’ MSCI Austria Index Fund, topped all individual funds’ performance for the year with a 71.38 percent return. ProFunds’ Wireless Communication UltraSector fund was second with a 67.59 percent return, followed by Metzler/Payden’s European Emerging Markets fund with a 53.31 percent return.
The Ameritor Investment Fund, a small-cap growth fund, had the worst returns for the year, with a negative return of 35.29 percent. It was followed by ProFunds’ Semiconductor UltraSector fund with a 35.23 percent negative return and the Thurlow Growth Fund, another small-cap growth fund, with a 33.63 percent negative return.
As the market approaches the five-year anniversary of its last major peak, from the dot-com bubble that burst in 2000, investors who stayed with small-cap and value funds saw the best five-year returns. Of the large-cap funds, only value funds posted positive returns, an average of 3.5 percent, while small-cap value funds have a five-year annualized return of 16.53 percent.
In sector funds, real-estate funds have the best five-year annualized returns at 21.57 percent, while science and technology funds have annualized five-year negative returns of 16.36 percent.