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Style Universe: Growth Funds Gained in November

Tech stocks lifted growth issues.

Karen Wallace, 12/05/2001

<SPAN class=CbTxt> <P>For the second month in a row, growth funds that buy quickly growing companies with high price/earnings ratios performed better than value offerings that prefer stocks that look cheap relative to earnings, cash flow, or other fundamental measures.</P> <P>November was a pretty good month for all funds. The average domestic-stock fund in Morningstar's database rose 1.81% for the trailing 30 days through December 3. ProFunds UltraShort OTC <?XML:NAMESPACE PREFIX = MSTR /?><MSTR:SECURITY>USPIX</MSTR:SECURITY>, which essentially makes a bet that the Nasdaq 100 index will drop, posted the worst return for any U.S.-equity fund for the month through Dec. 3, falling 12.61%. The fund uses short-selling and other techniques to try to go twice as far in the opposite direction of the index on a daily basis. Thus, it gains when the index loses, which has not been the case over the past month.</P> <P> <TABLE cellSpacing="0" cellPadding="0" width=422 border="0" > <TD><IMG height=224 src="http://im.morningstar.com/im/SU_120301_1.gif" width=422></TD> </TABLE></P> <P><SPAN class=CbTxt>ProFunds UltraOTC <MSTR:SECURITY>UOPIX</MSTR:SECURITY>, which uses futures and options to essentially achieve twice the daily return of the Nasdaq 100, was at the opposite end of the return spectrum from its sister fund during November. It rose 10.84% through Monday.</P> <P>ProFunds UltraOTC looks good when tech stocks are rallying, as they did in October and November, but it's an extremely volatile fund overall. When tech goes south, this fund shows its steep downside, wrote Morningstar fund analyst Alan Papier in a recent analysis. The last 12 months bear this out: The fund has lost more than three fourths of its value in the trailing 12 months that ended Dec. 3 while the average technology sector fund has fallen 43.19%. Ultra OTC really isn't suitable for most investors; even the most bullish, long-term tech investors would be wise to "consider a fund with less-dire downside consequences," Papier wrote.</P> <P>Invesco Growth <MSTR:SECURITY>FLRFX</MSTR:SECURITY>, which keeps more than half of its assets in tech stocks, also enjoyed the rally, rising 5.35% over the 30 days ending Monday. This fund also is extremely risky because manager Trent May owns a concentrated portfolio of between 30 and 50 stocks that often have very high price multiples, says Morningstar senior fund analyst Peter Di Teresa in a recent analyst report. That's been a invitation to disaster since tech stocks imploded last year, but some of the fund's more risky holdings have performed well recently. Phone and network-equipment maker JDS Uniphase <MSTR:SECURITY>JDSU</MSTR:SECURITY>, the fund's second-largest holding, was up nearly 8% over the trailing one-month period through Monday. Investors are starting to believe the company's and its peers' fundamentals are stabilizing, said Morningstar stock analyst Jay Ritter. Business seems to be declining at a slower pace, he said.</P> <P> <TABLE cellSpacing="0" cellPadding="0" width=422 border="0" > <TD><IMG height=224 src="http://im.morningstar.com/im/SU_120301_2.gif" width=422></TD> <TD height="1"0></TD> (1)</FONT> Sequoia, <FONT color=#ff3300>(2)</FONT> Fidelity Fifty, <FONT color=#006600>(3)</FONT> INVESCO Growth Inv, <FONT color=#006600>(4)</FONT> ProFunds UltraOTC Inv.</FONT></FONT> </TD></TABLE></P> <P>Funds that shunned tech lagged last month. Large-value Fidelity Fifty <MSTR:SECURITY>FFTYX</MSTR:SECURITY> has made a huge bet against the technology sector and it fell 2.18% over the month through Monday, said Morningstar senior fund analyst Christopher Traulsen. The fund's large stake in energy issues, such as oil and gas company Burlington Resources <MSTR:SECURITY>BR</MSTR:SECURITY> (12% of assets) and integrated oil company ExxonMobil <MSTR:SECURITY>XOM</MSTR:SECURITY> (10% of assets), have also been a drain on the fund over the past month. The stocks are down 0.7% and 3.8%, respectively, for the one-month period through Dec. 3 as investors react to recent oil price volatility, said Morningstar stock analyst Corey McElveen.</P> <P>Sequoia Fund <MSTR:SECURITY>SEQUX</MSTR:SECURITY>, which devotes most (94%) of its assets to financial stocks, was almost flat last month, losing 0.14% for the 30 days that ended Monday. The managers of this fund are classic value investors who idolize Warren Buffett so much they keep nearly a third of the fund's portfolio in Buffett's Berkshire Hathaway <MSTR:SECURITY>BRK.B</MSTR:SECURITY>. Berkshire fell 2.0% for the one-month period through Monday.</P> <P>Fidelity Fifty, which often shifts its sector bets rapidly, is probably too volatile for most investors, said Morningstar's Traulsen. Sequoia Fund has garnered great long-term returns by adamantly sticking to its strategy, but it has been closed to new investors since 1981. </FONT></P> /?> /?>

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