Still a bit skittish of the bull market
Investors are pleased that the third-quarter Dow has recovered from its July slump. What lies ahead?
from the October 10, 2007 edition
Page 2 of 3
Investors go global
A global growth theme has worked well for investors whose portfolios are tilted toward large-cap information technology, basic materials, capital goods, and energy stocks, agrees Les Satlow, portfolio manager at Cabot Money Management in Salem, Mass.
The tech sector, in particular, offers many attractively valued stocks with superior growth prospects, he says. Companies such as Cisco Systems, Microsoft, and Texas Instruments, for example, enjoy significant earnings growth from exports and overseas operations. Many new product cycles are ramping up, including Microsoft's new Vista operating system, video-game platforms, and numerous broadband applications for the Internet and wireless systems. "The global growth theme should continue to play out well because many foreign economies, especially China and India, are more robust than the US," Mr. Satlow says.
The market's wide swings have led jittery investors to the safety of money-market funds. In August, investors poured a record $150 billion into money-market funds, triple July's figure, says Jeff Tornejoh, senior analyst with Lipper. Moreover, domestic stock fund flows continued to decline sharply with the exception of mixed-asset type funds, which place asset-allocation decisions into the hands of professional managers. The increasingly popular target horizon funds, for example, adjust stock and bond allocations with respect to an investor's planned retirement date. Globally focused funds again garnered the lion's share of fund inflows.
Bigger is better
From a performance standpoint, fund results during the quarter diverged between capitalization sizes and investment styles. Big was definitely better than small, as most small-stock categories slid several percentage points into the red. As was the case in the first quarter, a style shift toward growth strategies was clearly evident in the large-cap arena. The large-cap growth category advanced 6.2 percent compared with flat results for large-cap value funds.
In the international arena, funds specializing in China and emerging markets were prominent pacesetters, advancing 28.9 and 11.8 percent, respectively. "Emerging markets are growing much faster than the US, yet stock valuations are, in most cases, cheaper than in the US," says Thomas Melendez, international fund manager at MFS Investments. "The risk profile of emerging markets such as Brazil and India, though still much higher than the US, has improved considerably in recent years. That's one reason why they bounced back surprisingly fast after the summer's market slide."
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