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 Lipper, in report from The Dallas Morning News.
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 Schwab Center for Investment Research Vice President Jim Peterson.
"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 John Hancock Funds.
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.