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2001 OUTLOOK

With 2000 behind us, this year brings???



If there were a little round 8-ball that told us what the performance of the stock market would look like in 2002, when asked, the likely response would be " not really sure. ask again later."

With equity fund performances mostly in the dog house as we close out the year, each new year brings new market opportunities and forecasts.What follows is a look at what various money pros within the mutual fund industry expect in 2002:

  • T. Rowe Price. The money managers and economists at this Baltimore, Maryland-based fund family see inflation declining, the Fed continuing to keep rates low, and a meaningful recovery next year.

    Their words of advice for fund investors are simply to a longer view of the market, don't get sector-happy and overweight your mutual fund portfolio with one-sector stock funds, and, make sure that you create a diversified portfolio of funds to modify risk.

  • Waddel & Reed. Hank Herrmann, chief investor officer at Waddel & Reed Investment Management, is expecting "slush" in the year ahead.

    "My forecast is for slush: moderate economic growth, slightly higher prices, improving corporate profits and an accommodating interest rate structure," says Herrmann, at Waddel & Reed, in Shawnee Mission, Kansas. "Considering the recent climate, this is not a bad scenario."

    Herrmann says if inflation where to pop, interest rates would rise as well which would put pressure on bond and stock prices. If deflation came along, he said both corporate profits and stock prices could go down. "Slush, " he says, " Puts us in a position where interest rates have room to go down and corporate profits could improve. Both trends would aid financial asset prices."

  • MFS. Jim Swanson, MFS fixed income strategist says that despite the recent decline in Gross National Product (GDP) and weak corporate earnings in the third quarter, several key factors indicate that the economy has begun to stabilize.

    Swanson thinks that high-grade corporate bonds look attractive in the current economic environment, and, that they are at their cheapest levels this century. "These companies are not only survivors but drivers of the U.S. economy, " says this Boston-based pro.

    Ed Baldini, a member of the MFS Value Equity Team, is optimistic about the market next year.

    He says that value investing tends to outperform growth during two distinct periods of a market cycle---during periods of market volatility and in early stages of economic recovery. On the other hand, Baldini says that value stocks tend to underperform growth stocks in the later stagers of economic growth periods as earnings growth begins to moderate.

    "Despite the record relative returns of value over the last year and a half, " says Baldini, " We believe that the value sector can still provide attractive returns relative to the general market."

  • American Century. Randy Merk, chief investment officer at American Century funds in Kansas City, Missouri, expects the economy and the markets will improve by year-end 2002.

    Look through his crystal ball and Merk thinks that the S & P 500 should end next year up around the 1250 level; that GDP growth will be between 1.6 and 2.2 percent; unemployment will peak around the 6.8 to 7.2 percent; and that we'll all enjoy a low inflation environment during the year.

    But, no matter what the pros say, any one who has been investing for any length of time has come to realize that markets have a mind of their own; that returns fluctuate year after year; and, that the best anyone can do is manage their money to meet their individual goals, and, to the best of their ability.

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    Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.


    To read more articles, please visit the column archive.




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