Newspaper article THE JOURNAL RECORD

A Tough Year for the Markets Is Good Reason for Fund Diversification

Newspaper article THE JOURNAL RECORD

A Tough Year for the Markets Is Good Reason for Fund Diversification

Article excerpt

NEW YORK -- Portfolio diversification might sound boring or stodgy, but investment advisers say it's the approach mutual fund investors should take these days.

Consider, they say, that neither the investors who focused on high-flying technology funds nor those who stuck to safer stock index funds are happy this year. Both groups would have been better off, experts say, investing in a "basket" of funds with varying growth strategies and that invest in companies of all sizes and in different industries.

Technology fund investors, of course, have the most reason to despair this year. The Nasdaq Composite index is down about 30 percent for 2000.

Likewise, tech funds are down about 30 percent so far this year, according to Lipper, a Summit, N.J.,-based company that tracks fund performance.

Index funds -- most of which tie their performance to that of the broader Standard & Poor's 500 index -- are doing better but still trading at a loss for the year. The S&P 500 is down about 10 percent after delivering gains in the 20 percent to 30 percent range for the last five years.

The biggest mutual fund, Vanguard's $105 billion 500 index fund, has fallen about 10 percent so far in 2000.

"The name of the game is diversification," said Vernon Lee, an independent financial planner and head of Lee Investment Consulting in Raleigh, N.C.

Diversification is not a new concept. Financial advisers have advocated it for decades.

Lee said diversification these days means buying funds that invest in large and small companies both domestically and across the globe and with varying growth strategies and across market sectors. It doesn't mean buying several index funds or several funds in the same sector, because those funds likely invest in the same handful of stocks.

Although it might be tempting to get into the current hot sector- specific mutual funds, Lee doesn't recommend that approach. Right now, the top-performing funds are biotechnology and health care- related, up 36 percent for the year, according to Lipper.

Lee reasons that an individual sector can have one really good year followed by a real downer. …

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