Despite a lackluster close to 2005, mutual fund investors should give thanks that November's strong performance led to overall fourth-quarter gains of between 4% and 5%. In 2005, domestic funds gained 7.2%on average.
"This bull market is now entering its fourth year, and it is getting tired," said Don Cassidy, senior research analyst for New York-based research firm
Perhaps the most exhausted categories are energy and housing, according to Cassidy, which have given way to new market leaders: transportation, technology and materials used in manufacturing, such as aluminum and steel.
The fourth quarter also witnessed low-dividend growth stocks outperforming the traditionally secure, utility-heavy value funds. This shift does not surprise
"In the last five years, value stocks have trounced growth stocks, and it's time for that trend to change," the San Francisco-based analyst said.
Energy and utility funds were about the only categories to drop in the last quarter, by 0.7% and 4.7%, respectively.
"Both sectors had a great run through Sept. 30, but they fell out of bed at the start of the fourth quarter," said Gregory Phelps, a utilities analyst at
One reason for investors pulling out of the strong-and-steady utilities may be that the prices of those stocks have risen so steeply that investors are plugging their value-fund profits into other sectors, Peterson offered.
Phelps expects utilities to rebound eventually, especially since America's 75 million baby-boomers, the first of whom begin retiring this year, will be looking for interest-bearing investments for supplemental income.
"This is a demographic trend that will continue for at least a decade," Phelps said.
Some market watchers are concerned about domestic performance in upcoming months, especially since late last year when the two-year and 10-year Treasury notes yielded the same returns, signaling a continued inverted curve and possibly a recession.
Investors seeking balance, may look overseas, where the average quarterly gains among funds was between 4% and 5%. Japan, however, beat that average by nearly four times, gaining 20% in the third quarter and 18.5% in the fourth quarter.
