Charting Your Course - Black Enterprise

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Black Enterprise Magazine September/October 2018 Issue

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How did mutual funds do in 1999? It depends who you ask. The year was marked by some marvelous highs: if you were in the Scudder 21st Century Growth Fund, for example, you reaped a 124.9% gain. But there were also some dreadful lows: if you held shares in the Scudder Small Co. Value Fund, you took it on the chin with a loss of 11.8%.

First, more of the good news. According to Chicago-based Morningstar Inc., the average domestic stock fund posted a 27.2% total return for 1999, which was the best year since 1995, when stock funds shot up 31.7%. But what a difference four years made. Back in 1995, the wealth was spread evenly. Among nine categories of diversified U.S. stock funds, every group gained at least 24% and none gained more than 37%.

Fast-forward to 1999. Morningstar’s small growth category, which includes companies with median market capitalizations of less than $1 billion, returned an unprecedented 65.8%. (As the name suggests, the 374 funds in this class invest mainly in small companies expected to rapidly increase sales and earnings.) Midcap (meaning market caps between $1 billion and $5 billion) growth funds were just behind, returning 60.1%, while large growth funds (market caps of greater than $5 billion) returned a not-too-shabby 38.6%. As you can see, growth funds did just that: they grew, spectacularly.

Now for the less-than-rosy part of the picture. Value funds-those that attempt to buy stocks selling at low prices-trailed by a huge margin. Large, midcap, and small value funds returned only 6.6%, 6.7% and 4.9%, respectively.

Beyond growth and value funds, the news was similarly mixed. The average international stock fund gained 48.3% (led by Japanese stock funds, which were up 114%), by far the best showing of the decade. Both Pacific funds that exclude Japan and emerging-markets funds were up 72%, while European funds trailed, but still managed a solid 25% gain.

Closer to home, the best performance of all-no surprise here-was posted by funds specializing in technology stocks, which returned 135% for the year. Conversely, funds specializing in real estate and financial stocks lost money last year (-3.5% and -0.8%, respectively) while precious-metals funds returned a meager 4%. Long-term bond and intermediate-term bond funds also showed losses (-2.8% and -1.4%, respectively), in what was one of the worst years ever for the bond market.

What will the new millennium bring? Some experts expect a continuation of recent trends. “In terms of investing, the prospect that technology stocks will continue to lead the market is as sure a bet as you’ll ever see,” says Robert Markman, president of Edina, Minnesota-based Markman Capital Management. “That will mean continued strength in growth funds and lagging performance by value funds. Investors shouldn’t be putting their money into funds that hold chemical companies and old-line manufacturers,” traditionally the province of value funds.

On the other hand, Roger DeBard, managing director of Hotchkis & Wiley, a Los Angeles investment firm, urges investors not to abandon value funds. “Some growth stocks are fully priced

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