Winners focused on raw goods

2Q fund gains in commodities

Associated Press

June 28, 2008

NEW YORK - The rising commodities prices that have created so many headaches for consumers and businesses in recent months managed to reward some mutual fund investors in the second quarter, giving them the only healthy gains in a generally dismal market.

Preliminary figures from fund tracker Lipper Inc. show that funds focused on commodities and raw materials had the biggest gains of any fund category in the April-to-June period. Natural resources funds posted 20.84 percent returns for the quarter and 15.54 percent for the year, while global natural resources funds have shown returns of 15.73 percent for the quarter and 10.78 percent for 2008.

Commodities funds showed a 19.29 percent return in the quarter and 29.83 percent so far this year, and basic materials funds returned 7.42 percent for the quarter and 3.40 percent year-to-date.

The gains reflect soaring commodities prices during the quarter. Crude oil most notably has passed $140 a barrel, while gold, although down from its highs above $1,000 an ounce, is still selling in the $900 range.

Lipper's calculations included results through Thursday. With one session to go, the Dow Jones industrial average is down 7.47 percent for the quarter. And the broader Standard & Poor's 500 index - the yardstick for evaluating many mutual funds - is down 3.35 percent. The Nasdaq composite index, which holds many technology names, is up 1.60 per- cent.

For the year to date, the Dow is down 14.46 percent, the S&P 500 is down 12.94 percent and the Nasdaq is down 12.69 percent.

Diversified U.S. stock funds returned 0.60 percent for the quarter but show a negative return of 9.67 percent in the first half.

"We've had our ups and downs," said Lipper analyst Jeff Tjornehoj. "Finding that the average diversified equity fund is down about 7 percent through the start of the year at this point I think was rather expected."

He noted that the performance of commodities could give a lift to funds that don't necessarily focus on those areas because many broader funds would likely have some holdings in areas like energy companies.

Tjornehoj cautions, however, that today's natural resources fund could be tomorrow's China fund.

China region funds showed a negative 5.30 percent average return in the quarter and 25.48 percent for the year. That's a marked turnaround from last year when these funds showed an average return of more than 50 percent.

"Late entrants to this are getting burned right now. When everybody said they wanted to be in China, that was actually the time to get out," he said.

Some regions have done well. Latin America funds showed an average 8.42 percent return for the quarter and 4.70 percent for the year.

But some of the weakest spots weren't among regional funds.

Not surprisingly, financial services funds had a negative return of 12.91 percent in the quarter and 23.16 percent for the year to date. Investors were worried about the damage of costly write-downs for mortgage debt that has deteriorated amid the housing slowdown. Financial companies whose share prices once soared from the lucrative business of bundling and selling off mortgages are now tanking.

And international real estate funds had a negative return of 10.63 percent for the quarter and 17.22 for the year so far. Consumer goods funds had a negative second-quarter return of 7.84 percent and 11.15 so far in 2008.

Overall, sector equity funds averaged just an 0.80 percent return for the quarter, and a negative 6.32 percent return year to date. World equity funds had a negative return of 2.11 for the second quarter, and 11.86 year-to-date.

Growth investments managed to show decent gains, Tjornehoj noted. Growth stocks are seen as likely to post earnings or revenue gains that will outpace rivals. Such companies generally don't pay sizable dividends like the more established names, which are referred to as value stocks.

"The growth strategy found some traction in the quarter," he said. "I think investors suspected that value was going to overtake growth as the market grew softer and softer, but I think it just wasn't in the cards this time."