Asset Allocation Comeback

Sticking with a long-range fund strategy will be critical in today's investing environment

doubts about Internet and wireless companies impacted big names such as AT&T and Motorola.

“Buy American” proved to be the best strategy. International stock funds lost more than 4% in the first half of the year. European funds showed a slight gain, but Latin American and Asian funds were pounded-with Japanese funds down nearly 13%.

Growth funds continued their winning streak over value funds. Growth funds buy companies expected to post rapid gains in sales and earnings, while value funds buy out-of-favor stocks in hopes of a turnaround. Growth funds (heavily weighted in tech stocks) had decent gains in 1998 and 1999 of 7%.

“The leadership enjoyed by growth funds stemmed largely from the first quarter,” says Benz. Technology stocks peaked in March, so many growth funds enjoyed a strong quarter. In the second quarter though, growth funds fell sharply.” Value funds lost less ground than growth funds in the second quarter; still, they have yet to catch fire. Value funds rely heavily on financial stocks, notes Benz, “which continue to be weak.”

Small and medium-sized companies swept the blue chips. Funds invested in companies with the largest market capitalization fared worse than funds invested in small-caps and mid-caps. The “large-blend” category (not tilted to either growth or value stocks), which includes the popular S&P 500 index funds, eked out a bare 0.70% return in the first half.

“Large-cap funds were hurt by the poor performance of bellwether stocks such as Microsoft, Home Depot, and Wal-Mart,” says Benz. “Small- and mid-cap funds varied in their results. Those heavily weighted in Internet issues lagged, while those holding semiconductor and biotech companies did much better.” For example, Janus Venture fund lost 17%, emphasizing such Internet firms as VerticalNet and Liberate Technologies. Dreyfus Founders Discovery gained 20% by backing such plays as Quanta Services, which makes infrastructure equipment for telecommunication networks, and Emcore, a semiconductor supplier.

With all of this market volatility and changes in leadership, have mutual fund investors decided to duck for cover? Some may be hiding out, but not Judis R. Andrews Sr., an attorney in Phoenix. “I’ve been investing in mutual funds for more than 12 years now,” he says, “and I’ve discovered that staying the course is the best approach, no matter how the market moves up and down in the short-term.”

Andrews, 58, positions himself as a conservative investor who wants to be sure his family will be secure in case anything happens to him. “That’s why I invest mostly through mutual funds,” he says. “You might not make as much as you could make by picking the right individual stocks, but there’s only a very slight chance that you’ll lose money in the long run by investing in a well-managed mutual fund.”

As Andrews sees it, mutual fund investors won’t get hammered as badly as investors who make poorly informed stock picks. He relies upon the expertise of the pros, “I specialize in personal-injury law in my practice and I let mutual fund portfolio managers decide where

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