Lipper Analyst Commentary

the performance numbers look in funds for 2 months?

A. You're right. And spring training has started, so winter can?t last too

long?

Q. Wasn't February a little wintery for funds investors?

A. Well, it was slightly chilly, not anywhere nearly as pleasant as January

had been. But hardly a disaster in historical context!

Q. Some numbers, please?

A. Sure. Just for context and a big picture:

Bond funds gained an average 0.46%

Stock funds lost an average 0.48%

The S&P 500 index funds averaged +0.23% for the month.

January was quite pleasant, so the average stock fund is now still up about

4.8% YTD (2 months).

Q. How is it that the S&P 500 was up, but yet the average stock fund was

down?

A. A bit untidy, but let me unravel it for you. Of course, the S&P 500 is

not the whole market, just the bigger stocks. Most of the actively managed

funds had been adding positions in the momentum groups, like energy stocks

and coppers and gold, and then those all took a pounding in February. So

the S&P-type funds, which made no such change in weightings, didn't have

those anchors pulling them lower.

Q. How much did those hot types burn people in February?

A. Natural Resources funds, which own not only oils but other things like

copper and gold and timber, lost 8.8% in the month ? they're still ahead

about 4.6% YTD.

Gold funds, after losing 8.0% in Feb, are still up 9.8%. And the

technology funds lost less, about 1.4% in February, but they are still up

5.0%

Q. So things hurt a little but people are still ahead for the year, then.

A. Oh, definitely! The only 2 kinds of equity funds (out of 67

classifications) that are actually down are Japan Funds (0.7%) and

specialty diversified funds, which are heavily the short and long/short

types of portfolios. Over 97% of funds are up for the past 2 months, net.

Between Gold and resources funds, only about 1.5% of investor money in

equity funds is there, so not exactly a huge pain spot. Just very newsy.

Q. I guess we get short memories, especially when the current perception is

a little painful?

A. Yes, I agree. And having some sense of history is a good thing for

investors, but the daily TV headlines make too many folks think very

short-term.

Q. So, what kinds of funds are actually doing the best, year to date, and

what went UP in February?

Latin American Region funds +18.0% thru Feb 28

China Region Funds +14.3%

Emerging Markets Funds +10.9%

Gold funds, as said earlier, +9.8%

Among domestic-equity types, my old favorites the Real Estate Funds

are tops with a +8.6% !

Small-Cap Growth is not far behind with +8.2%

Q. So small-cap is winning again?

A. So far. Of course in a strongly-up market like January, that can easily

happen. But in Large and Multi-Caps, value is still beating growth by

about 1 or 1.5%.

Q. How about the world equity funds? People sure shoveled a LOT of money

into them in January?

A. They pretty much took a pause, but no disaster. Down 0.75% on average

in Feb, but still ahead 6.6% (better than domestic!) YTD. Japan was down

4.4% in Feb but China, India, and especially Russia were just roaring

ahead.

Q. What does the Lipper crystal ball see?

A. Very clouded around the details this early in the morning. Generally we

think 2006 will be a choppy year, and only small net upside progress.

Could change to downside if the Fed keeps pushing rates up too long,

though.

Q. How to invest, then?

A. Stay diversified in your fund types, so no one individual trend can hurt

you a lot. Remember and apply the lessons of too much concentration from

2000-02.

Don Cassidy is a Senior Research Analyst at Lipper specializing in fund

flows, exchange-traded funds, (ETFs), closed-end funds, equity fund

performance, and author of Trading on Volume (McGraw-HIll).