U.S.A.
Investor Relations
About Us
Newsroom
Investor Relations
 Press Release
U.S. Media Contact+1 312 696-6241
Kathy Panagopouloskathy.panagopoulos@morningstar.com
Bruised and Bewildered, Funds Bear the Battered Market, Says Morningstar in Yearly Report

CHICAGO, Dec 19, 2002 – It's been another tumultuous year for investors as the average mutual fund lost more than 11 percent for the year through Dec. 18, according to Morningstar's special Year in Review report on Morningstar.com, the firm's investment Web site.

"The seemingly interminable bear market has dealt investors some hard lessons during the past three years. Many have learned the value of diversification and have shifted money from stock funds to bond funds this year," said Russ Kinnel, director of mutual fund analysis for Morningstar. "This is a sound strategy as long as your goal is to craft a more balanced portfolio. Investors who are buying yesterday's winners in the hopes of gaining the answers to tomorrow's markets, however, should note that chasing performance rarely works in the long term." 

2002 Performance Highlights (data through Wednesday, Dec. 18, 2002)

  • The average domestic-stock fund lost more than 20 percent.    
  • The specialty-precious metals group was the top-performing fund category for the second year in a row, gaining 55 percent.    
  • Specialty-real estate funds eked out another gain. It was the best-performing domestic-stock category, advancing a little more than 2 percent.    
  • Technology and communications funds brought up the rear with average losses of about 40 percent each.   
  • There were few havens abroad, as the average international-stock fund dropped more than 14 percent.    
  • The average bond fund gained more than 6 percent.    
  • The only bond category to post a loss for the year was the high-yield bond category, which dropped more than 2 percent for the year.    
  • The average international-bond fund topped the fixed-income world with a return of more than 12 percent.   
  • For the third year in a row, value-oriented domestic-equity value funds performed significantly better than the growth-oriented funds. The average large-value fund lost about 18% for the year through Dec. 18, compared with an average loss of about 27% for large-growth funds.   
  • Fixed-income funds continued to outperform most equity funds and attracted the lion's share of investors' money. By the end of October 2002, PIMCO Total Return (PTTRX) had supplanted Vanguard 500 Index (VFINX) as the world's largest mutual fund.

The Good
Bear funds betting on stocks'decline were among the few offerings to advance. Perennial pessimist David Tice's Prudent Bear (BEARX) topped U.S.-stock funds with a 62 percent gain. 

Real estate funds were the domestic-stock fund winners for 2002. Despite some pockets of weakness in office REITs (real estate investment trusts), consistent consumer spending supported shopping center REITs and funds that own them. Funds such as Alpine Realty Income & Growth (AIGYX), up more than 13 percent for the year, performed the best in the specialty-real estate fund category.

Recently, the strengthening euro boosted the fortunes of European real estate funds, helping Morgan Stanley Institutional European Real Estate (MSUAX), Security Capital European Real Estate (SEUIX), and Kensington Select Income (KIFAX) lead the category. All three funds are up at least 14 percent for the year through Dec. 18.

Fixed-income and balanced funds continued to prove their worth as portfolio diversifiers. Domestic-hybrid funds, which invest in both stocks and bonds, lost about 10 percent, far less than the average domestic-stock fund. 

Falling bond yields in Europe helped boost international fixed-income funds' returns. Funds that buy high-quality, nondollar-denominated bonds and don't hedge back into U.S. dollars--such as American Century International Bond (BEGBX)--did well as the dollar weakened. 

The Bad
Political and currency concerns roiled the worst international-equity category: Latin America stock. Fidelity Advisor Latin America (FLACX), Morgan Stanley Latin American (LATBX), and Van Kampen Latin American (MSLBX), were among the category's worst funds, with each losing at least 22 percent for the year.

The specialty-utilities category failed to live up to its reputation as a haven. Utilities funds were once sold as refuge for savings because of the dividends paid by the highly regulated power, phone, and natural gas services in which they tended to invest. The funds have been anything but staid in recent years. They plunged 21 percent on average in 2001 as Enron (ENRNQ) collapsed and then nearly another 24 percent on average through Dec. 18, 2002, as overcapacity in the utilities and telecom markets, a weak economy, and high-profile blowups continued to plague the group.

The average high-yield fund lost more than 2% as fears about the economy, corporate accounting, bankruptcies, and defaults ravaged the group. Funds with exposure to industries wracked by corporate failures and malfeasance--such as telecommunications, cable, airlines, and electric utilities--faired poorly. Quaker High Yield (QUHIX), SAFECO High Yield (SAHBX), and Excelsior High Yield (UMHYX) were among the hardest-hit offerings.

The Ugly 
Technology stocks and the funds that own them rallied early in the fourth quarter, but they still were on pace to finish their third consecutive year deep in the red. Even the best-performing tech funds of the year, such as Marketocracy Technology Plus (TPFQX) and Royce Technology Value (RYTVX), lost money. The worst tech funds--Black Oak Emerging Technology (BOGSX), ProFunds Ultra Semiconductor (SMPSX), and Van Wagoner Technology (VWTKX)--lost more than 65 percent of their value. 

For the most current data on more than 13,000 funds and 7,000 stocks, and more insight on what the year's top market news means for investors, go to Morningstar's 2002 Year in Review section: http://www.morningstar.com/QtrEnd/CoverQ402.html.

About Morningstar
Morningstar, Inc. is a global investment research firm, offering an extensive line of print, software, and Internet-based products and services for individuals, financial advisors, institutions, and the media.

Editor's Note: If you are interested in receiving weekly, monthly, and quarterly e-mails on stock and mutual fund data, contact: Annette Larson, Morningstar Media Relations, annette.larson@morningstar.com. Preliminary year-end data will be distributed Thursday, Jan. 2, 2003.

 Printer-friendly version
SEC Filings
Annual Reports
Earnings Releases
Calendar of Events
Analyst Coverage
Corporate Governance
Investor Communications
Investor Questions
Stock Information
Safe Harbor Provision
Investor Relations Contacts
News and SEC Filing Alerts
Request an investor information kit 
© Morningstar. All rights reserved.