A Modest Recovery From Winter's Pain
Mutual funds squeezed out small gains in the second quarter of 2005 after a lackluster start to the year, as inflation remained tame and investors seemed to shrug off concerns about surging energy prices.</br></br>U.S. diversified stock funds, which are the most common type of mutual funds, posted a return of 2.32 percent for the second quarter as of June 30, compared with a negative return last quarter. But analysts say investors should still be cautious.</br></br>Whether positive returns continue depends on volatile oil prices and on how much the Federal Reserve raises its benchmark short-term interest rate this year, analysts said. On Thursday, the Fed bumped up the short-term interest rate by a quarter percentage point for the ninth time this year, bringing it to 3.25 percent.</br></br>"It's the magnitude of changes people are concerned about," said Tom Roseen, a senior research analyst at Lipper, the mutual fund research company that released the latest preliminary numbers. "If the Fed decides to tighten more aggressively, both in time frame and in magnitude, that could put a strain on the market as a whole."</br></br>People got nervous in the first quarter of 2005, as consumer prices rose more quickly than in previous months. Investors worried that the Fed would raise its short-term interest rate more aggressively to curb the risk of inflation. The result: U.S. diversified stock funds saw negative returns of 2.52 percent.