An investor tempted by the latest gold rush
Q Gold funds, which are often listed as precious-metals funds, did very well in the second quarter of this year. But many analysts tend to criticize the funds. Why should one not buy into a fund doing so well, when most equity funds are either losing money or barely making money?
J.M., New York
A Granted, gold funds have done very well this year, as often happens during short periods of financial uncertainty in global financial markets. But over time, gold funds, says Morningstar analyst Russ Kinnel, tend to be very volatile.
When markets rebound following downturns, gold funds often drop in value sharply, he says. For the past five-year period, gold funds are actually down about 14 percent. Most other fund categories, by contrast, are in positive territory.
If you buy into a gold fund, you have to monitor it almost daily, says Mr. Kinnel, who believes the average investor should either avoid such funds, or, at the most, put only a small amount into them.
Q After looking at the top-performing mutual funds in your July 9 edition, I called Fidelity Investments to ask about their Fidelity Select Software and Computer Fund, which you listed as one of the top funds of 2001. The chart in the Monitor shows a return of 40.6 percent. But an associate of Fidelity couldn't figure out where that number came from. He said the return for the year is in the negative range. Am I missing something?
S.C., via e-mail
A Not at all. This was good detective work on your part and underscores how important it is to always check performance records before investing in a fund. According to Lipper Inc., from whom the Monitor received the return figure, the fund earned 40.6 percent for the second quarter ending June 30. Information firm Morningstar has a similar return. For the year, however, the fund is down nearly 8 percent through July 10, according to Lipper and Morningstar.
It is interesting to note that the fund was actually up almost 3 percent for the year through June 30. The recent drop is a sign of fund's and the market's volatility.
Most fund analysts prefer to track long-term averages to fully measure the prospects of a fund. According to Lipper, the software fund was up 22 percent for the trailing three years through June 30. But much of that gain reflects the go-go years for technology stocks in the late 1990s.
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