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| Small And Midcap Funds Beat Large Cap Funds in Year After 3rd Rate Cut |
NEW YORK, March 26 /PRNewswire/ -- Standard & Poor's Fund Services today
released 12-month performance data showing that small and midcap funds
outpaced large cap funds in each of the three periods in the last decade when
the Federal Reserve implemented a third rate cut. The dates of the third rate
cuts are: November, 1990; January, 1996; and November, 1998. The Federal
Reserve instituted a rate cut for the third time this year on Wednesday,
March 21.
"There's a widely accepted axiom in the investing world that the third
time is the charm for rate cuts," says Rosanne Pane, Research Director of Fund
Services at Standard & Poor's. "One might expect that if the economy was in
need of three successive rate cuts, there would be a 'flight to quality.' In
that case, large cap funds, and even bond funds, would outperform other
sectors. Our research indicates that this didn't happen in the bull market of
the 1990's. We found that small caps did the best of all fund categories,
followed by mid cap funds. Large cap funds lagged behind in each of the three
periods we considered. This is probably a reflection of the bull market
mentality that growth will drive profits and increase equity prices. It will
be interesting to see whether this pattern continues to hold true a year from
now."
Domestic Equity Fund Performance Twelve Months After Third Rate Cut
Date of third cut Nov-90 Jan-96 Nov-98
Twelve month period 11/90 - 11/91 1/96 - 1/97 11/98-11/99
Sector
Small Caps 38.7% 23.7% 28.5%
Mid Caps 30.2% 24.1% 27.5%
Large Caps 24.1% 23.3% 20.7%
Average Domestic
Equity Fund 31.0% 23.7% 25.6%
Todd Rosenbluth, ratings analyst, commented that "Domestic bond funds did
really quite well in the period following the third rate cut in 1990, because
the Fed took a total of 15 steps to cut rates by 4% and get the economy out of
recession. In the year following the January, 1996 third rate cut, high yield
bond funds were up 12%, while investment bond funds only returned 3.7%.
Neither bond sector performed well after the third rate cut in November 1998."
Domestic Fixed Income Performance After Third Rate Cut
Date of third cut Nov-90 Jan-96 Nov-98
Twelve month period 11/90 - 11/91 1/96 -1/97 11/98-11/99
Sector
Investment Grade Bond 15.94% 3.72% -1.12%
High Yield Bond 36.49% 12.26% 2.7%
Average Domestic Bond Fund 26.22% 7.99% 0.79%
Standard & Poor's Fund Services tracks the performance of nearly
60,000 institutional, pension, insurance, and mutual funds worldwide. With
400 professionals in 13 countries who track and analyze funds, Standard &
Poor's is the world's leading provider of mutual fund information and
analysis.
Standard & Poor's, a division of The McGraw-Hill Companies Inc.
(NYSE: MHP), provides independent financial information, analytical services,
and credit ratings to the world's financial markets. Among the company's many
products are the S&P 1200, the premier global equity performance benchmark;
the S&P 500, the premier U.S. portfolio index; and Credit Market Services,
offering credit ratings on more than 220,000 securities and funds worldwide.
Further details on Fund Services can be found at:
http://www.standardandpoors.com/onfunds
SOURCE Standard & Poor's
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CONTACT:
Rosanne Pane, Director of Fund Services,
212-438-5057, or Rosanne_Pane@standardandpoors.com, Mimi Barker,
Director of Communications, 212-438-5054, or
Mimi_Barker@standardandpoors.com, or Todd Rosenbluth, Ratings
Analyst, 212-438-5041, or Todd_Rosenbluth@standardandpoors.com,
all of Standard & Poor's
