Growth Stocks

Also in this column: High charge-offs More checks than ever Philly Fed's finger Despite the "crushing" tech stock collapse that flattened the half-billion-dollar stock portfolio that bears his name, Eugene Peroni Jr. of Nuveen Investments still believes in growth stocks. Just not in "aggressive" growth, the Radnor-based veteran stock picker said. "It's more defensive growth," Peroni said of the 20 selections in his Peroni Growth Portfolio 2001 Series one-year investment fund, which debuted Friday and will be cashed out June 14, rain or shine.

BOSTON - Managers of stock mutual funds had an unusually tough time beating the market last year, with fewer than one in five achieving that goal, a study found. That's the lowest number in the 10 years that the study has been conducted. About 84 percent of U.S. stock funds that are actively managed, rather than passively tracking an index, underperformed versus the Standard & Poor's indexes representing the market segment the funds invest in. That's according to S&P Indices, which released its 10th annual fund performance scorecard yesterday.

Is your money working hard? You could be losing ground if you don't check the performance of your savings and consider alternatives. Much has happened this year to impact returns. Stocks gyrated and are now flat for the year overall, but international stocks did better than average. Bonds plummeted with rising interest rates, causing bond mutual fund returns to remain negative for the year. Bank accounts still pay peanuts. Let's assume you've got the right distribution among stocks, bonds and cash - admittedly, a big assumption.

The city's return on its pension investments - although up significantly over the last two years - apparently is being hindered by the city's South Africa investment ban, a financial analyst told the Board of Pensions and Retirement last week. During the year ending June 30, four of the six private investment firms that manage the pension board's stock portfolio reported returns for the city that were lower than those generated for other clients that did not prohibit South African-related stocks, according to the analyst, Carl W. Deane.

The stock market was mixed in a busy session yesterday, showing no sign of breaking its early-1993 stalemate. The Dow Jones average of 30 industrials, up 8.11 points Monday and down 1.35 on Tuesday, slipped an additional 2.71 points to 3,305.16. But advancing issues outnumbered those declining by about 4 to 3 on the New York Stock Exchange. And the NASDAQ composite index set a record, gaining 7.51 points to close at 681.85, led by technology stocks such as Intel and Apple Computer.

The recent slide in growth stocks has made this a tough spring for the two richest guys in America. At least on paper. Warren Buffett, the Sage of Omaha, plans to leave his fortune to groups that combat population growth and nuclear war, not necessarily in that order. But he suddenly has a little less to give: His Berkshire Hathaway Corp. tumbled $5,800 per share in the past week, as poor performance by its insurance holdings cut into profits. If you have always wanted to own a chunk of Berkshire Hathaway, maybe now's the time: Shares were selling at a mere $72,300 last night, down from $78,100 last Tuesday.

Growth stocks. Series EE Savings Bonds. Luxury homes. Tax-free munis. Annuities. Stamps. What do they have in common? All can shield your child's college fund from taxation. Given a year to digest the so-called kiddie tax provisions of the new tax law, tax planners are now armed with an array of techniques for deferring, lowering or, in some cases, eliminating taxes on money set aside for college. In passing the kiddie tax, Congress was attempting to foil those wealthier parents who cut their tax bills by shifting income-producing assets to their children.

Finally, investors are catching up to corporations in responding to last May's tax break on dividend payments from stocks. They had spent months scooping up technology and other growth stocks that typically do not pay dividends. But that is changing. The tax cut - lowering the maximum tax rate on qualified dividends to 15 percent, from 35 percent when they were treated as ordinary income - set off a flurry of corporate announcements increasing or initiating dividends. There were 50 such announcements in July alone, a monthly number unmatched in years.

Stock prices rose across the board yesterday as investors sought bargains among the battered health-care and tobacco stocks. The market also was boosted by low bond yields. The Dow Jones average of 30 industrials rose 33.23 points to 3,356.50. Advancing issues outnumbered declining ones by about 7 to 4 on the New York Stock Exchange. Volume on the floor of the Big Board came to 298.83 million shares as of 4 p.m., down from 321.04 million in the previous session. A smart recovery in the NASDAQ index, up 11.06 points to 662.46, also helped fuel the rally in blue chips.

Here are five examples of how the year after the meltdown changed old thinking about investing: Conventional wisdom: Safe investing means adjusting the mix of stocks and bonds in a portfolio based on an investor's age and appetite for risk. Younger investors were advised to own more growth stocks, then transition as they aged into more shares of well-established, blue-chip companies and into bonds, which return less but are less risky. Stocks were expected to beat bonds handily over the long haul.

BOSTON - Managers of stock mutual funds had an unusually tough time beating the market last year, with fewer than one in five achieving that goal, a study found. That's the lowest number in the 10 years that the study has been conducted. About 84 percent of U.S. stock funds that are actively managed, rather than passively tracking an index, underperformed versus the Standard & Poor's indexes representing the market segment the funds invest in. That's according to S&P Indices, which released its 10th annual fund performance scorecard yesterday.

Here are five examples of how the year after the meltdown changed old thinking about investing: Conventional wisdom: Safe investing means adjusting the mix of stocks and bonds in a portfolio based on an investor's age and appetite for risk. Younger investors were advised to own more growth stocks, then transition as they aged into more shares of well-established, blue-chip companies and into bonds, which return less but are less risky. Stocks were expected to beat bonds handily over the long haul.

The Dow Jones industrial average closed at 11,011.90 yesterday, topping the important psychological 11,000 barrier for the first time since the Sept. 11, 2001, attacks. The accomplishment was particularly heartening for investment managers who specialize in blue-chip stocks such as those of giants General Electric Co., International Business Machines Corp., and Pfizer Inc. "The Dow is a bellwether for the megacap stocks that have done nothing since 2000," said John Waterman, chief investment officer at Rittenhouse Asset Management Inc., of Radnor.

Finally, investors are catching up to corporations in responding to last May's tax break on dividend payments from stocks. They had spent months scooping up technology and other growth stocks that typically do not pay dividends. But that is changing. The tax cut - lowering the maximum tax rate on qualified dividends to 15 percent, from 35 percent when they were treated as ordinary income - set off a flurry of corporate announcements increasing or initiating dividends. There were 50 such announcements in July alone, a monthly number unmatched in years.

The first quarter ended with a thud for the stock market yesterday, despite sharp gains after the war in Iraq began. Investors' fears of a protracted war pushed down the the major indexes for the last four trading days. Yesterday, the Dow Jones industrial average lost 1.89 percent, or 153.64 points, to close at 7,992.13, while the broader Standard & Poor's 500 Index fell 1.77 percent, or 15.32 points to finish at 848.18. The technology-heavy Nasdaq composite index lost 2.08 percent, or 28.43 points, to close at 1,341.

Most of us need a little balance in our lives. The bull market of the 1990s was a great rush, but recent losses have left many investors wishing that they had been a little more cautious. For them, balanced mutual funds can be a good solution. Balanced funds invest in both stocks and bonds. A well-run balanced fund can offer one-stop shopping for investors who want the stability of bonds with the stronger growth of stocks. As with any mutual fund, investors need to know what they are buying when they consider balanced funds, said Catherine Hickey, an analyst with Chicago fund-tracker Morningstar Inc. Just having the word "balanced" in the name does not guarantee that a fund tries to limit the downside.

Also in this column: High charge-offs More checks than ever Philly Fed's finger Despite the "crushing" tech stock collapse that flattened the half-billion-dollar stock portfolio that bears his name, Eugene Peroni Jr. of Nuveen Investments still believes in growth stocks. Just not in "aggressive" growth, the Radnor-based veteran stock picker said. "It's more defensive growth," Peroni said of the 20 selections in his Peroni Growth Portfolio 2001 Series one-year investment fund, which debuted Friday and will be cashed out June 14, rain or shine.

Value stocks have performed so poorly for so long that some of the market's best-known value investors have packed up their stock tables and gone home. Julian Robertson of Tiger Management, George Vanderheiden of Fidelity Investments, Robert Sanborn of Oakmark Fund, and Gary Brinson, chief investment officer at UBS A.G. all have walked away this year from their careers investing in companies whose share price is low relative to earnings or book value. How bad has it been? Worse than ever, said Chris Darnell, chief investment officer at Grantham, Mayo, Van Otterloo & Co., the Boston money manager that Vanguard Group just hired to run its new U.S. Value Fund.

For longer-term investors, it's a bit odd to imagine, but Merck & Co., long thought of as a cutting-edge growth investment, recently has been lumped into the "old economy. " While tech stocks soared in the first part of the year, stocks classified as "old economy," including pharmaceutical firms, withered. Likeother companies in the same situation, Merck last month announced a $10 billion share-buyback program as a vote of confidence in the stock. As of Friday, Merck, the world's No. 1 drugmaker, had declined 7.5 percent so far this year.

Small-cap stocks have trounced large caps recently, but not because a full-scale small-cap revival is under way. Instead, investors' appetites for growth stocks have moved down the food chain. The Russell 2000 index of small stocks has gained 32 percent since mid-October, nearly tripling the 11 percent return of the Russell 1000 index of large-cap companies. Small caps bucked the overall market last week as well, gaining 1.60 percent while the Dow Jones industrial average dropped 1.97 percent and the Standard & Poor's 500 index fell 2.96 percent.