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>Bonds and Other Things: Stocks Tend to Cool off in the Summer



If you were hoping for a summer rally in your stock funds, don't hold your breath. History shows that stocks tend to languish during the months of May through September.

Like it or not, when school is out, so, typically, is the market. At least that's what six decades of number crunching shows. In a Ned Davis Research report the findings showed that over the past six decades, from 1942 through April 29, 2002, the S & P 500 averaged an 8.4 percent gain during the months of October through April but less than a 1 percent move upward, 0.9 percent to be exact, during the months of May through September.

Here's a look at how the S & P 500 has fared during those monthly time periods over the past five years:

- In 1998, during the months of May through September, the S & P fell 8.52 percent; from October through April, it gained 31.28 percent.

-In 1999, from May through September, that index lost 3.93 percent; from October through April, it gained 13.23 percent.

- In 2000, the S & P 500 lost 1.10 percent from May through September and lost 13.02 percent from October through April.

- In 2001, the index lost 16.69 percent from May through September , but gained 3.46 percent during the months of October through April.

- And last year, in 2002, the S & P 500 was down 24.30 percent from May through September and up 12.58 percent from October through April.For fund investors concerned about where the equity markets are headed in the near term, perhaps this year it's best to not to worry and simply enjoy the summer.

As for bonds---with interest rate at their lowest levels in decades--- most pros agree that there's danger in plowing new money into them right now.

According to Morningstar, the bond market rally over the past couple of years is close to being over. Many of the core bond funds that this Chicago-based securities research firm tracks are yielding 3 to 4 percent. Morningstar says that fund managers aren't likely to be able to deliver the 7 to 10 percent returns that they have in the recent past.

On the other hand, with the top money market mutual funds returning not much over 1 percent, where are fund investors to turn? Balanced funds are one choice. These kinds of funds hold both stocks and bonds---- a typical ratio of 60 percent stocks ad 40 percent bonds. According to Lipper, the average balanced fund was up 3.41 percent year-to-date through May 1 and the average stock fund ahead 3.6 percent.

If balanced funds don't appealing to you, make sure that your fund portfolio is poised for the summer and well diversified between money market, stock and bond funds.

Mutual Funds and Taxes

Taxes. There are as much a part of the investing world as they are our personal lives. And, if you'd like to learn more about how they impact the return your getting from your funds, Lipper recently completed an extensive study on the subject titled "Taxes in the Mutual Fund Industry."

Findings include:

-Lipper estimates that between 49.6 percent and 53.9 percent of the $5.96 trillion that's invested in open-end mutual funds are owned by taxable investors who on average, give up between 1.5 to 1.8 percent points in returns because of them.

- In 2002, registered investment companies distributed the lowest amount of capital gains and income dividends since 1995.

- The largest absolute percentage drag on a fund's performance is the sales charge; taxes, over time, are the next largest drag.

- Of the approximate $3.46 trillion invested in taxable accounts, only $25.6 billion is in tax-managed accounts.

- General municipal debt funds out perform general taxable fixed income funds for the 1-, 3- and 5-year periods on a gross, total return, load-adjusted, pre-liquidation and post-liquidation return basis.

To read and/or download the entire Lipper study, titled Taxes in the Mutual Fund Industry, visit www.lipperweb.com.

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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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