News Roundup


Fund service expenses

A new study by Lipper estimates mutual fund shareholders coughed up $11 billion in shareholder-servicing expenses in 2001. According to Lipper, the average shareholder pays 2.8% of assets for services like online research tools, telephone representative service, and personalized performance reviews. The study looked at 663 mutual fund complexes.

Additionally, the study found that mid-size fund shops generally have lower service expenses than the large firms due to labor outsourcing. Not surprisingly, Lipper also found that funds sold directly to investors have lower fees than those sold by intermediaries.

January summary

Broad domestic and international indexes continued to slide in January.

Jan 2002 returns
Returns since 9/11/2001
Dow Jones Industrial Average
Dow Jones STOXX 50
Dow Jones Asian Titans 50
Dow Jones Global Titans 50

Source: Dow Jones Indexes

Jan 2002 returns
S&P 500
Nasdaq Composite
Russell 1000
Russell 2000
Russell 3000

Source: Reuters

In the U.S., the Dow Jones technology sector rallied to become the biggest winner in January, gaining 1.2%. The worst-performing sector was Dow Jones telecommunications sector, which shed 8.16% of its value during the month.

Look before you leap

Despite a weak year for the stock market in 2001, small-cap funds and particularly small-cap value performed relatively well. The Barra SmallCap Value index was up a scorching 13% in 2001, while the broad Wilshire 5000 index lost nearly 11% over the same period.

Investors may be tempted to jump in and catch some of that performance, but many small-cap funds are shutting their doors to new investors, which should ring alarm bells. According to Morningstar, 11 small-cap funds stopped taking in new cash in 2001, and Putnam Investments said it will close its small-cap value fund this month.

When several funds in a hot sector of the economy close their doors to new investors it's usually a sign that the peak has come and gone. Morningstar senior fund analyst Scott Cooley says investors need to practice caution and avoid chasing recent performance.

"We saw a similar thing happen in 1997 when lots of small-cap value funds closed to new investors," said Cooley. "Small-cap fund managers are fairly conservative and will stop taking in new cash when their fund becomes too big and they don't see a lot of opportunities out there in their given style."

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