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April 4, 2006 > Small-caps, gold and China mutual funds lead quarterly winners

Small-caps, gold and China mutual funds lead quarterly winners

by MICHAEL J. MARTINEZ, AP Business Writer

NEW YORK (AP), March 31 _ Wall Street's first-quarter stock market rally led U.S. mutual funds to solid returns for the year to date, with smaller company stock funds posting double digit returns China international funds and gold funds also performed above average.

According to mutual fund watcher Lipper, diversified U.S. stock funds, which have $3.5 trillion in total assets, averaged a 6.67 percent return for the quarter. Small caps led the way, with aggressive smaller company funds posting average returns of 12.56 percent and conservative small-cap funds averaging a 10.56 percent return.

Despite five-year highs for the Dow Jones industrials during the quarter, large-cap growth funds had the slowest growth, averaging a 3.07 percent return.

``The large-cap stocks tend to be the ones that are most interest rate sensitive,'' said Bill Sickles, senior research analyst at Lipper. ``With the changes at the Fed and figuring out if and when they'll stop raising rates, it's not a surprise to see large-caps suffer some, while small-caps are far less sensitive to rate issues.''

Mutual funds focused on specific sectors, which command $250 billion in total assets, posted an 8.06 percent average return. Real estate funds led the group, with average returns of 13.75 percent, followed by natural resources funds _ which include energy holdings _ which saw average returns of 11.88 percent. Healthcare and biotechnology funds lagged the average, posting a 3.43 percent average return.

Internationally, a string of record gold prices in the quarter led gold funds to a 21.37 percent average return, followed by China region funds with an average return of 19.95 percent. Japanese mutual funds, which rode a surge in the Tokyo markets to a 42.72 percent one-year return, only managed a 4.55 percent return for the quarter.

``Certainly, China is the major growth market in Asia, but I wouldn't put the Japanese funds away yet,'' Sickles said. ``The Nikkei just topped 17,000, and the Japanese economy has a little momentum. Plus, Japanese companies buy from China and vice versa, so that region is sort of interlinked.''

As a whole, world equity funds, which hold $1.06 trillion in assets, had an average return of 10.57 percent.

The top individual funds for the quarter reflected the larger trends. The U.S. Global Investors World Precious Minerals fund led all funds with a 38.24 percent return for the quarter, followed by the Oberweis China Opportunities fund with a 37.76 percent return, the U.S. Global Investors Gold Shares fund with a 36.17 percent return and Frontier's Microcap fund with a 34.44 percent return.

Ameritor Investment fund led the worst funds for the quarter with a 28.57 percent negative return. The mid-cap growth fund, now closed to investors, is also the worst performer over the past one, two, three, five and 15 years annualized.

The other worst performers for the quarter were the ProFunds UltraShort Small-Cap fund, which posted a 21.48 percent negative return, ProFunds UltraShort Mid-Cap fund with a negative 12.22 percent return and ProFunds Short Real Estate Fund, with a negative return of 12.09 percent. All these ProFunds funds are so-called ``bear market'' funds, which hedge against a downturn in the market, and tend to perform poorly in a strong stock market.

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