Stock Funds Post 2% Loss For Quarter Setback For Mutuals Is First Since Fourth Quarter Of 1994

Thanks to the sell-off that hit Wall Street at the end of March, stock mutual funds finished the first three months of 1997 with their first quarterly loss in more than two years.

The research firm Lipper Analytical Services Inc. reported Wednesday that the average general equity fund lost 1.98 percent in the January-March period, which ended Monday.

That marked the first negative result for stock funds as a group since the fourth quarter of 1994.

Despite the recent setback, funds still boast strong gains for the past few years. In the 12 months through March 31, according to Lipper Analytical, the average fund among more than 2,700 domestic stock funds posted a 10.82 percent return.

For the past two years, the gains have come at a 19.57 percent annual rate; for the past five years 13.56 percent, and for the last 10 years 11.42 percent.

“Concerns over too-rapid economic growth and higher interest rates began to affect the investing climate,” Lipper said in a news release reporting the quarterly statistics.

Funds involving small stocks suffered the sharpest setback among broad stock-fund categories, falling 6.91 percent.

“Mid-cap” funds specializing in medium-sized companies lost 5.84 percent. Growth funds focused on larger companies were down 1.28 percent, after showing a gain for most of the quarter.

On the plus side, index funds modeled on the Standard & Poor’s 500-stock composite managed a 2.52 percent gain for the quarter, while equity income funds gained 1.68 percent and growth and income funds rose 1.13 percent.

Among the specialized fund groups, science and technology funds fell 8.60 percent in the quarter, reflecting weakness in technology stocks, and gold-oriented funds were down 7.92 percent. International funds fared a little better, with the average of more than 1,100 world equity funds recording a 1.46 percent gain, paced by Latin American funds, which rose 13.68 percent.

The biggest losers in the international category were Japanese funds, which fell 6.70 percent in the quarter to extend a four-year losing streak.

Domestic funds investing with aggressive growth strategies, notably among smaller stocks, had already begun to retreat as 1997 began, and many of them posted double-digit losses in the first quarter.

Analysts say the continued performance disparity between large stock and small appears to reflect a general uneasiness about the recent lofty levels of the market.

“Money continues to flow into stock mutual funds, and the managers who run those funds have to invest it somewhere,” observes George Putnam III in his Boston-based investment advisory The Turnaround Letter.

So “safe” stocks have become the investment of choice for now.