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1997-98: REVIEW AND OUTLOOK : Morningstar on Conventional

Afraid of the Bear?

January 04, 1998

In an attempt to predict which funds could be expected to hold up best in the next bear market, Morningstar Inc. studied fund performance over the last few decades. One good predictor, researchers found, was how funds performed during the months in which the Standard & Poor's 500 index (which measures the performance of the stocks of the nation's largest companies and thus expresses most of the market's value) lost more than 3%.

Funds with sufficient history to receive a "weak market rank" on the following pages will show a rank based on how well the fund performed in the 11 months since 1990 in which the S&P 500 lost more than 3%.

Although almost all funds lost value in those months, certain categories of funds did better than others. Below is a ranking of those equity fund categories' performance for the first 10 of those months relative to the S&P 500. (Categories are defined in rankings on the following pages.)

Prediction is always an iffy business, of course, and the next down market may be unlike any previous one.

Precious metals: +40.08%

International hybrid: +33.45

Latin America stock: +29.40

Utilities: +29.23

Domestic hybrid: +26.10

Convertibles: +25.09

Real estate: +19.13

Natural resources: +18.48

Europe stock: +14.54

Mid-cap value: +12.55

Small-cap value: +10.72

Large-cap value: +8.20

Large-cap blend: +7.94

Mid-cap blend: +7.29

Foreign stock: +4.76

World stock: +3.69

Small-cap blend: +2.91

Large-cap growth: +1.07

S&P 500 index: 0.0

Health: -0.10

Unaligned: -0.75

Financial: -0.83

Technology: -4.75

Communications: -5.17

Diversified emerging markets: -5.18

Mid-cap growth: -6.99

Diversified Pacific/Asia: -10.33

Japan stock: -11.03

Small growth: -12.05

Pacific/Asia, excluding Japan: -12.30


Source: Morningstar Inc.

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