Mutual fund returns tumble in third quarter

The stock market's third-quarter tumble wreaked havoc on almost all stock mutual funds, with 98.9 percent reporting negative returns for the three-month period ending September 30, according to Weiss Ratings Inc., an independent provider of ratings and analyses of financial services companies, mutual funds and stocks.

Stock mutual fund investors lost an average of 16.6 percent during the third quarter versus an overall market decline of 17.6 percent as measured by the S&P 500.

"Even after free-falling for the last 2 1/2 years, there's obviously still a good amount of risk left in the market," said David Lackey, president of Weiss Ratings. "Some sectors are faring better than others, but even the defensive sectors failed to hold up last quarter."

Stock mutual fund sectors registering the largest losses during the third quarter were technology, foreign and small cap funds, with decreases of 25.45 percent, 19.45 percent, and 19.27 percent, respectively.

Of the 5,735 stock mutual funds rated by Weiss, those recording the largest losses during the quarter were:

ProFunds-Ultra OTC Fund Investments, an aggressive growth fund, lost 42.14 percent;

Berkshire Focus Fund, a growth fund, lost 41.54 percent;

Apex Mid-Cap Growth Fund, a mid-cap fund, lost 40.19 percent;

Rydex Series Electronics Investments, a technology fund, lost 38.62 percent; and

Fidelity Select Electronics, a technology fund, lost 37.41 percent.

Defensive funds also lost ground in the third quarter, with funds in the precious metals and real estate sectors falling an average of 3.51 percent and 9.16 percent, respectively. Only five of the 160 funds in these defensive sectors recorded gains in the third quarter, a sharp contrast to the first half of 2002 when all precious metals and real estate-related funds posted positive returns.

The stock mutual funds recording the largest returns for the quarter were:

Pro-Funds Ultra Bear Fund, an aggressive growth fund, returned 33.77 percent for the quarter;

ProFunds Ultra Short OTC Fund, a technology fund, returned 30.86 percent;

Gabelli Comstock Partners Cap Value, an aggressive growth fund, brought 27.16 percent;

Gabelli Comstock Partners Strategic O, an aggressive growth fund, returned 22.53 percent; and

Rydex Series Arktos Investments, an aggressive growth fund, returned 18.66 percent.

Bond funds offer reprieve

Investors found safety in bond mutual funds as 88.9 percent of the funds recorded positive returns, gaining an average of 2.62 percent during the third quarter. Over the past four quarters, the average bond fund has registered a 5.26 percent return, compared to a 14.06 percent loss on the average stock mutual fund.

Of the 4,273 bond mutual funds tracked by Weiss, those recording the largest returns for the third quarter were:

American Century 2025 Investments returned 20.36 percent for the quarter;

American Century 2020 Investments returned 17.75 percent;

Rydex Series U.S. Government Bond Investment returned 17.09 percent;

Rydex Series U.S. Government Bond C returned 16.66 percent; and

American Century 2015 Investments returned 15.81 percent.

"Market volatility and corporate shenanigans have investors running scared," Lackey said. "Even bond market investors have reason to worry due to record low interest rates and the parade of companies marching toward Chapter 11."

In addition to rating the risk-adjusted performance of more than 11,000 equity and fixed income mutual funds, Weiss also issues investment ratings on more than 7,000 stocks and safety ratings on more than 15,000 financial institutions, including banks, insurers and brokerage firms. Weiss Ratings receives no compensation from the companies it rates. Revenues are derived from sales of its products.