What a Difference a Day Makes for Your Funds

Looking at your stock fund's performance on one day is usually tilting at windmills. Unless that day was Monday.

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Unless you've been sleeping under a rock, you know that the Nasdaq, already down more than 60% from its all-time high, fell 6.3% Monday. The S&P 500 fell 4.3%, leaving the benchmark down 20% from its high and putting it in bear market territory. No, it doesn't usually make much sense to look at your funds' performance on a single day. But just like a rainstorm tells you how leaky your roof is, how well or poorly your funds held up Monday can give you some indication of how much risk you're taking.

"One day returns [on a very bad day] can be really meaningful, not for picking funds but for measuring your risk tolerance," says Scott Cooley, a senior fund analyst at Morningstar. "If your funds were down 4% or 5% yesterday you might think they're risky, but there were funds down much more than that. And the funds that really get hammered on days like yesterday are often the ones that fall the most in a sustained downturn."

You might not think it's a big deal if your funds tank harder than their peers on a brutal day, but in many cases it should at least raise a red flag. The reason: Funds that tend to go through extreme ups or downs usually do so because they're betting on high-priced, speculative stocks. And that can be a recipe for big losses when the highflying fund you bought over the last couple of years proves equally stunning on the downside.

Of course, it's not easy to know if your funds' Monday losses were miserable or acceptably painful. Fund trackers don't typically cull single-day average gains or losses for different fund categories, but it's important that you steer clear of apples-to-oranges comparisons whenever you evaluate your funds' performance. For instance, it would be a mistake to compare your small-cap value fund with the mostly big-cap growth S&P 500.

Luckily, though, the folks at Morningstar were good enough to pull together the average Monday losses for diversified U.S. stock funds, as well as those that focus on a single sector.

Manic Monday Here are the yardsticks you can use to judge how your funds fared during Monday's drubbing.
Diversified U.S. Stock Funds
Category	Avg. Monday Return	Avg. YTD Return
Large-Cap Growth	-4.8%	-17%
Mid-Cap Growth	-4.6	-18.2
Small-Cap Growth	-4.1	-14.8
Large-Cap Value	-3.2	-3.6
Mid-Cap Value	-2.7	-0.4
Small-Cap Value	-2.2	3.1
Balanced	-2.1	-3.9
S&P 500	-4.3	-10.6
Sector Funds
Category	Avg. Monday Return	Avg. YTD Return
Technology	-5.7%	-29.2%
Health	-5.6	-20.4
Communications	-5.3	-20.8
Financial	-3.9	-7.5
Natural Resources	-2.6	1.8
Utilities	-2.1	-5.5
Real Estate	-0.8	-0.4
S&P 500	-4.3	-10.6
Source: Morningstar. Returns through March 12.

Clearly these losses are painful and stock-like. After all, you typically picture a mutual fund chugging along in modest moves, not falling 4% or 5% in a single day. Then again, if you bought shares of funds that used big bets to lead the pack in previous years, your funds may have fallen twice that far.

Last year, health care funds lapped all others with a stunning 55.4% gain, compared to a 9.1% loss for the S&P 500. Health funds that focus on the mercurial biotechnology sector soared even higher, like the (DRBNX)Dresdner RCM Biotechnology fund, which rocketed up 81.9%. Now the tables have turned and the fund lost more than 10% on Monday. It's down almost 35% since Jan. 1, trailing almost all of its peers, according to Morningstar.

Monday's returns also showed the sense in choosing a less-focused sector fund. Broader health care funds like the no-load Vanguard Health Care fund fell far less than the S&P 500 and far less than its peers who overdosed on biotech stocks.

Now, This is Going to Hurt Biotech-stuffed health care funds were hit hardest of all stock funds yesterday.
Health Fund Losers
Health Fund	Monday Return	2000 Return
(GENEX)GenomicsFund.com	-12.8%	-28.1%
(DNADX)Amerindo Health & Biotechnology	-11.5	N/A
(DRBNX)Dresdner RCM Biotechnology	-10.1	81.9
(MNWBX)Monterey Murphy New World Biotechnology	-9.6	64
(FBIOX)Fidelity Select Biotechnology	-9.3	32.8
Avg. Health Care fund	-5.6	55.4
Health Fund Survivors
Health Fund	Monday Return	2000 Return
(ICHCX)Icon Healthcare	-2%	43%
(FSHCX)Fidelity Select Medical Delivery	-2.6	67.8
(VGHCX)Vanguard Health Care	-2.8	60.6
(HGHAX)Hartford Global Health	-3.1	N/A
(RYHIX)Rydex Health Care	-3.2	31.1
Avg. Health Care fund	-5.6	55.4
Source: Morningstar. Returns through March 12.

A somewhat similar theme played out among the battered tech-fund pack. These stocks fell 5.7% on average Monday, leaving them down more than 63% over the last 12 months.

But if you owned an aggressive tech fund like (PBTCS)PBHG Technology & Communications fund, which shot up 244% in 1999, you fell more than 9% yesterday. Jeff Wrona runs both this fund, which is down 38.5% this year, and the (IPTBX)Idex Pilgrim Baxter Technology fund, which also made our list of Monday's worst tech-fund casualties.

(JAMFX)The Jacob Internet fund's 9.2% Monday loss, after last year's 79.1% tumble, shows the perils of sticking with Net stocks. Net funds like (WWNPX)Kinetics Internet New Paradigm and the (MFITX)Monument Digital Technology fund that broadened their Net definition beyond tech stocks fared far better in a category where they arguably don't belong anymore.

It's interesting that the top Net fund out there is the (PDISX)Potomac Internet/Short fund, which shorts Net stocks or essentially profits from their downfall. It's the only tech fund that made money on Monday and it's up more than 195% over the last 12 months.

Decked Tech Depending on which tech fund you picked, Monday was horrible or just lousy.
Tech-Fund Losers
Tech Fund	Monday Return	2000 Return
(BOGSX)Black Oak Emerging Technology	-10.1%	N/A
(PBTCS)PBHG Technology & Communications	-9.3	-43.7
(JAMFX)Jacob Internet	-9.2	-79.1
(IPTBX)Idex Pilgrim Baxter Technology	-8.9	N/A
(TEFQX)Firsthand e- Commerce	-8.8	-55.1
Avg. Tech fund	-5.7	-33.1
Tech-Fund Survivors
Tech Fund	Monday Return	2000 Return
(PDISX)Potomac Internet/Short	4.3%	59.4%
(WWNPX)Kinetics Internet New Paradigm	-1.2	3.9
(MFITX)Monument Digital Technology	-2.1	-56.9
(WWWIX)Kinetics Internet Infrastructure	-2.3	-45.7
(DPNAX)Dreyfus Premier NexTech	-2.8	N/A
Avg. Tech fund	-5.7	33.1
Source: Morningstar. Returns through March 12.

While it's intriguing to look at the chasm between top- and bottom-performing sector funds, you can learn a lot from looking at how your diversified stock funds fared Monday -- namely, just how diversified your fund is. A steep drop in your diversified funds on Monday was probably driven by an oversized bet on the tech sector.

That's the case with funds like the (MBFOX)Merrill Lynch Focus Twenty fund, where manager Jim McCall picks 20 or so of his favorite stocks, as well as the (JGRTX)Janus Adviser Aggressive Growth fund and the (ICACX)IDEX JCC Capital Appreciation, both run by (JAENX)Janus Enterprise manager Jim Goff. Both funds have most of their assets invested in the tech and telecom sectors, which led to drops of 9.1%, 7.4% and 7.3%, respectively, on Monday. If you're curious, the Janus Enterprise fund fell 7.3% that day, too.

In The Line of Fire These diversified growth funds made sector bets that burned them on Monday.
Big-Cap Losers
Fund	Monday Return	2000 Return
(MBFOX)Merrill Lynch Focus Twenty	-9.1%	N/A
(TAGAX)Touchstone Aggressive GrowthT	-8.3	-19.7
(FLRFX)Invesco Blue Chip Growth	-7.8	-23.9
Avg. Peer	-4.8	-14.1
Mid-Cap Losers
Fund	Monday Return	2000 Return
(BENGX)Berger New Generation	-7.4%	-38.7%
(JGRTX)Janus Adviser Aggressive Growth	-7.4	-33
(ICACX)IDEX JCC Capital Appreciation	-7.3	-38.3
Avg. Peer	-4.6	-6.9
Small-Cap Losers
Fund	Monday Return	2000 Return
(IPOSX)IPO Plus Aftermarket	-7.6%	-41.5%
(SREMX)WM Small Cap Stock	-7.3	-11.5
(BMCGX)Apex Mid Cap Growth	-7	-76
Avg. Peer	-4.1	-5.7
Source: Morningstar. Returns through March 12.

The bottom line is that it's worth your effort to check out your funds' Monday and 2000 returns vs. their peers. Maybe you're comfortable with your funds' losses, but maybe you're not. If you're not, use this as a catalyst to diversify your portfolio with your new investments. It's one thing if the market is tanking, but it's quite another if you're suffering because of risks you never meant to take.

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