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 Inc., equity mutual funds as a whole averaged a 13.63 percent return in 2004. That compares well to the Standard & Poor's 500 index, the most common benchmark for mutual funds, which rose about 9 percent.
Small-cap value funds led all U.S. diversified equity funds with a 20.9 percent average return for the 52-week period just ended, 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 during the same period.
Large-cap growth funds _ expected to be a top performer in 2004 _ had the lowest returns at 7.4 percent, but 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.
Returns in specialized equity funds varied widely, mirroring the various industry sectors in the stock market. 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.
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 because of 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.
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-oriented 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.
The noteworthy and the not worthy
The best- and worst-performing funds as measured by year-to-date rate of return as of Dec. 30.
Year-to-date top funds Investment objective Percent return
iShares: Austria EU 71.38
ProFunds: Wireless; Inv TL 67.59
Metzler/ Payden: E E Mkt EU 53.31
US Glbl: East European EM 51.42
World Fds; East Eur; A EM 49.53
Year-to-date bottom funds
Ameritor Investment MCCE -35.29
ProFunds: Semiconduct; Inv TK -35.23
Thurlow Growth MCGE -33.63
Rydex Dynamic; Vn 100; H SESE -24.86
ProFunds; UltSht OTC; Inv SESE -24.57
EM Emerging Markets
EU European Region Funds
MCCE MidCap Core Funds
MCGE MidCap Growth Funds
SESE Specialty Diversified Equity Funds
TK Science & Technology Funds
TL Telecommunication Funds
Note: Rankings include only the largest share class of each fund.
Source: Lipper Inc.