A Year of Uncertainty Fueling Gains for Value Funds, Says S&P Independent Research Provider Releases 1st Half Equity Fund Review NEW YORK, July 2 /PRNewswire/ -- So far this year, value funds have been in the winner's circle, as negative headlines are driving investors to attractively priced, high-quality stocks, reports Standard & Poor's -- a leading provider of independent investment research, ratings and indices. While value funds may be holding up better amid the year's difficulties, U.S. stock fund returns suggest investor concerns are having an impact. Factors unsettling investors this year include higher interest rates, oil price hikes, terrorism, and the presidential elections. According to Standard & Poor's database of over 17,000 mutual funds, the average domestic equity fund is up 4.67% year-to-date versus 3.29% for the S&P 500. The average value fund, sparked by small-cap value's strong first half performance (+7.71%), has returned an average of 5.93% over the same period. Standard & Poor's is predicting a year-over-year gain of about 9% for the S&P 500 in 2004. "Investors don't like uncertainty," says Sam Stovall, chief investment strategist at Standard & Poor's. "There has been a rotation toward value investments because of higher interest rates and questions about the strength of the U.S. economic recovery. These uncertainties are fueling gains for value stocks, which generally pay higher dividends," continues Stovall. "So far this year, domestic equity fund returns mirror this trend, with value funds leading in each category." The market's unease also seems to have diminished average returns for domestic equity funds in the second quarter. All U.S. stock fund categories showed modest average gains for the period, save small-cap growth funds, which returned -.52%. The average domestic equity fund rose .86% in the second quarter. "Losses for small-cap growth funds in the second quarter reflect investor apprehension over higher interest rates," adds Stovall. "Smaller companies may be some of the first to be affected by higher costs of capital. From a growth fund standpoint, a rotation into the large-cap arena is underway." While second-quarter results suggest weakness, the broad market is likely to finish the year higher, albeit at a less than previously expected gain. Standard & Poor's Investment Policy Committee forecasts the S&P 500 will rise to 1210 by the end of 2004, down from its previous forecast of 1215. Noting that a strong economy will spur solid increases in corporate earnings, the Investment Policy Committee projects a 20% earnings rise in 2004 for the S&P 500, a 23% earnings increase for the S&P MidCap 400, and a 34% rise in earnings for the S&P SmallCap 600. Tables showing the year-to-date and second quarter performance of domestic equity mutual funds can be found at the end of this release. Fund Investment Style Average Returns Year-To-Date 2004(%) Large-Cap Growth 2.33 Large-Cap Value 3.48 Large-Cap Blend 2.69 Mid-Cap Growth 4.72 Mid-Cap Value 6.60 Mid-Cap Blend 5.57 Small-Cap Growth 3.54 Small-Cap Value 7.71 Small-Cap Blend 6.96 Domestic Equity Funds* 4.67 S&P 500-Stock Index 3.29 Fund Investment Style Average Returns 2nd Quarter 2004(%) Large-Cap Growth 1.05 Large-Cap Value 1.05 Large-Cap Blend .98 Mid-Cap Growth .64 Mid-Cap Value 1.67 Mid-Cap Blend 1.10 Small-Cap Growth -.52 Small-Cap Value 1.57 Small-Cap Blend 1.10 Domestic Equity Funds* .86 S&P 500-Stock Index 1.58 *Excluding sector and balanced funds. All total returns include reinvested dividends. Data as of 6/30/04. Source: Standard & Poor's. Sam Stovall is a Standard & Poor's equity analyst. He has no affiliation with any company he covers, nor any ownership interest in any company he covers. The equity research reports and recommendations provided by Standard & Poor's Equity Research Services are prepared separately from any other analytic activity of Standard & Poor's. In this regard, Standard & Poor's Equity Research Services has no access to non-public information received by other units of Standard & Poor's. Standard & Poor's does not trade for its own account. About Standard & Poor's Standard & Poor's is a leading global authority in funds research, providing comprehensive information on more than 80,000 equity, bond, and money market funds worldwide. A team of more than 43 professionals in 10 countries who analyze funds carry out three basic types of activities relating to mutual funds: fund selection, manager monitoring, and reporting and evaluation. In addition, Standard & Poor's also evaluates more than 17,000 U.S. mutual funds through its STARS ranking system. Standard & Poor's, a division of The McGraw-Hill Companies (NYSE: MHP), is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research, data and valuations. With 5,000 employees located in 20 countries, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com. SOURCE Standard & Poor's Web Site: http://www.standardandpoors.com