Quarterly Fund Review: Tortoise Tramples Hare

The best thing about the third quarter is that it's over.

Stock funds were soaked in red ink, pummeled by the potent combination of a sagging economy, slipping corporate earnings and the confidence-sapping effects of Sept. 11's terrorist attacks. Only bond funds, the boring but capital-protecting alternative to stocks, posted a gain -- and then only a scant one.

The average taxable bond fund gained about 1% in the third quarter, compared with a 17% loss for the S&P 500 and the average U.S. stock fund. Over the past 12 months, bond funds are leading stock funds by more than 33 percentage points; they even have an edge over the past three years.

The average U.S. stock fund is now down more than 27% over the past 12 months, far worse than any calendar-year loss dating back to 1970. The worst losses continue to be suffered by tech- and tech-stuffed growth funds, which topped the sales charts last year. ...