Small-Cap Value Funds Outperform; Large-Cap Growth Lags
NEW YORK, Jan. 4 /PRNewswire/ -- With small-cap growth funds outperforming
all other U.S. investment styles in 2003, many investors refused to shift into
large-cap stocks in 2004 despite the recommendation of many market
forecasters. Their decision to stay the course paid off. According to
Standard & Poor's, the leading provider of independent investment research,
ratings and indices, domestic small-cap mutual funds outperformed all other
investment styles for the second year in a row in 2004, returning an average
of 16.2% for the year versus a return of 15.3% for the average mid-cap fund,
and a 9.8% return for the average large-cap mutual fund.
"As the bull market matures, investors often trade up the market cap
spectrum to large-cap companies with more stable earnings and easier access to
capital," says Sam Stovall, chief investment strategist at Standard & Poor's.
"That pattern didn't materialize in 2004, when the current bull market entered
its second year. The attractive earnings of small-cap stocks, coupled with
low interested rates, may have helped them stave off the traditional
challenges of mature bull markets."
While value funds generally led across board in 2004, growth funds
outpaced their value counterparts in the fourth quarter. The average growth
fund return in the fourth quarter was 12.2%. This outpaced the average return
of both value (+10.9%) and blend mutual funds (+10.7%) during the same period.
While a single quarter's results may not signal a longer-term trend, investors
seemingly were heartened by economic growth, lower oil prices, and a
conclusion to the 2004 presidential election.
According to Standard & Poor's review, investors were prudent to be
cautious in 2004. At the end of the third quarter in 2004, domestic equity
funds were up a modest 1.04%. At that time, investors faced high oil prices, a
close presidential election campaign, and rising interest rates. Since then,
oil prices have come down, the election was decided to Wall Street's
satisfaction, and the Federal Reserve stuck with its policy of measured rate
hikes. As a result, fourth quarter 2004 gains significantly boosted domestic
equity funds' returns overall last year. They were up 10.7% in the fourth
quarter, and gained 11.9% for the year.
Outlook for 2005
Despite last year's market-friendly trends, in 2005 the current bull
market will move into its third year, a period during which the S&P 500 has
historically gained about 3%. Standard & Poor's Investment Policy Committee, a
group composed Standard & Poor's senior analysts and strategists in the fields
of economics, equities, indices, fixed-income investments, technical market
analysis, and mutual funds, projects single-digit advances for the S&P 500,
putting the index at 1300 by year-end 2005, and 1255 by mid-year 2005.
Tables showing the performance of the average U.S. equity fund in 2004 can
be found at the conclusion of this release.
Sam Stovall is a Standard & Poor's equity analyst. He has no affiliation
with any company he covers, nor any ownership interest in any company he
covers. The equity research reports and recommendations provided by Standard
& Poor's Equity Research Services are prepared separately from any other
analytic activity of Standard & Poor's. In this regard, Standard & Poor's
Equity Research Services has no access to non-public information received by
other units of Standard & Poor's. Standard & Poor's does not trade for its
own account. Standard & Poor's other affiliates may provide services to the
companies that are the subject of this report.
Fund Investment Style 2004 Average Returns (%)
Large-Cap Growth +7.58%
Large-Cap Value +12.49%
Large-Cap Blend +9.41%
Mid-Cap Growth +12.79%
Mid-Cap Value +18.02%
Mid-Cap Blend +15.09%
Small-Cap Growth +11.21%
Small-Cap Value +19.51%
Small-Cap Blend +18.09%
All-Cap Growth +10.11%
All-Cap Value +14.21%
Domestic Equity Funds* +11.94%
S&P 500-Stock Index +10.88%
S&P SmallCap 600 Index +21.59%
S&P MidCap 400 Index +15.16%
Fourth Quarter
2004 Average
Fund Investment Style Returns (%)
Large-Cap Growth +9.67%
Large-Cap Value +9.11%
Large-Cap Blend +8.91%
Mid-Cap Growth +12.91%
Mid-Cap Value +11.62%
Mid-Cap Blend +10.86%
Small-Cap Growth +14.01%
Small-Cap Value +12.26%
Small-Cap Blend +12.48%
All-Cap Growth +11.31%
All-Cap Value +10.69%
Domestic Equity Funds* +10.72%
S&P 500-Stock Index + 9.23%
S&P SmallCap 600 Index +12.76%
S&P MidCap 400 Index +11.82%
*Excluding sector and balanced funds.
Source: Standard & Poor's.
Total returns include reinvested dividends
Preliminary data as of 12/31/04
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