Sorry, all you lovers of great big companies: Small is beautiful in 2001.
Next, put down those shovels and stop digging: Tech isn't dead yet.
The average small-capitalization stock fund gained 15.55 percent in the second quarter. That beat the 5.25 percent return of the once-dominant large-cap funds, as well as the 12.13 percent return for mid-caps.
Glitter led the stock groups in the quarter. Gold-oriented funds, which typically do best in times of inflationary fears and economic woes, turned in a 19.52 percent return. Before you get too carried away, however, keep in mind that gold has been an extremely unreliable hedge for years.
Other shining groups were biotechnology and technology, volatile funds which would've been an unlikely call earlier in the year. Perhaps that should teach us all an important lesson.
"Let me play my old record player here and tell everyone to diversify," said Don Cassidy, senior research analyst with Lipper Analytical Services, which tracks the nation's mutual funds. "That doesn't just mean buying funds with different brand names but funds that are truly different in nature."
Managing tech in a time of chaos is challenging, but Telis Bertsekas, portfolio manager of Fidelity Select Software & Computer Services, was up to the task. That fund gained 40.61 percent in the second quarter, with solid returns from Microsoft (MSFT), Computer Associates International (CA), Peoplesoft (PSFT), Adobe Systems (ADBE) and Siebel Systems (SEBL).
"Software and services outperformed networking and semiconductors because they're a little more stable," observed Bertsekas, whose fund was down 21 percent last year. "Software stocks were hit hard the end of March, so I was able to pick up high-quality companies at good prices."
Small growth funds with good stock-pickers also prospered. John Karnuta directed Roulston Emerging Growth Fund to a 39.10 percent gain in the quarter with significant gains from Pixelworks (PXLW), Brocade Communications Systems (BRCD), Orthodontic Centers of America (OCA) and Cheesecake Factory (CAKE).
"I expect a smooth economic recovery and a steady, attractive stock market," predicted Karnuta, whose fund was still down significantly for the first half despite that robust quarter.
"I like the prospects of biotechnology companies such as Protein Design Labs (PDLI) and Gilead Sciences (GILD) because they have solid earnings, good balance sheets and are going to grow."
The top funds in the second quarter, according to Lipper, were:
Turner B2B E-Commerce (TBTBX), Oaks, Pa.; $3.33 million in assets; "no load" (no initial sales charge); $2,500 minimum initial investment; 1-800-224-6312; up 41.46 percent.
Fidelity Select Software & Computer Services (FSCSX), Boston; $996 million; 3 percent "load" (sales charge); $2,500 minimum; 1-800-544-8888; up 40.61 percent.
Prasad Growth (PRGRX), Irving, Calif.; $1 million; no load; $1,000 minimum; 1-877-593-8637; up 39.23 percent.
Roulston Emerging Growth (ROEGX), Cleveland; $16.5 million; no load; $250 minimum; 1-800-332-6459; up 39.10 percent.
Atlas Emerging Growth Fund (ATEAX), Oakland; $20.8 million; no load; $2,500 minimum; 1-800-933-2852; up 38.67 percent.
This should've been a tricky year for a new fund to get started, but the new Ameristock Focused Value Fund was the top fund in the first half with a 59.13 percent gain.
This deep value fund takes large positions in companies it really likes. One-fourth of its portfolio consists of tire wholesaler TBC Corp. (TBCC), which excelled. It also bought stock in Restoration Hardware (RSTO) in January, confident that it wouldn't go bankrupt as some experts predicted, and its price doubled in two months.
"We like our stocks very, very undervalued, with good prospects going forward," explained portfolio manager Nicholas Gerber, who has also successfully run Ameristock Mutual Fund (AMSTX) for the past several years.
"I really think the overall stock market isn't going to do much over the next three to five years, so we'll be lucky if it averages a 7 to 10 percent annual gain."
Picking the right foreign country paid off big in the half. Matthews International China (MCHFX) increased 43.07 percent in value, with its big winners Guangzhou Pharmaceuticals, residential developer China Vanke and cell phone company China Mobile (CHL). That fund declined 7 percent last year.
"We've done particularly well this year because we have exposure to genuine Chinese companies, rather than overseas companies doing business in China, and we don't focus only on Hong Kong firms," said co-portfolio manager G. Paul Matthews.
"China is probably the only remaining growth engine in the world, with a current growth rate of 7 to 8 percent that is preferable to the slowing trends in the U.S., Japan and Europe."
The best fund results for the first half of the year came from:
Ameristock Focused Value Fund (AMFVX), San Francisco; $2 million in assets; no load; $1,000 minimum; 1-800-394-5064; up 59.13 percent.
Pilgrim Russia (LETRX), Scottsdale, Ariz.; $37 million; 5.75 percent load; $5,000 minimum; 1-800-334-3444; up 55.23 percent.
World Funds: Third Millennium Russia (TMRFX), Richmond, Va.; $2.1 million; no load; $1,000 minimum; 1-800-527-9525; up 51.92 percent.
Matthews International China (MCHFX), San Francisco; $30 million; no load; $2,500 minimum; 1-800-789-2742; up 43.07 percent.
Boston Partners Small Cap Value II Investors (BPSCX), Wilmington, Del.; $2.55 million; no load; $2,500 minimum; 1-888-261-4073; up 40.46 percent.
Andrew Leckey answers questions only through the column. Address questions to Andrew Leckey, "Successful Investing," 98 Henry St., Dept. 183, Brooklyn, NY 11201, or by e-mail at firstname.lastname@example.org.