Mutual funds still snoozing

Herb Greenberg

December 21, 1990|By Herb Greenberg | Herb Greenberg,Chronicle Features

It's no secret that mutual funds haven't fared well lately. Reg Green, who runs the Mutual Fund News Service, did some checking and found that not since 1974 have they turned in such poor investment performances.

"It's the worst in the number of funds down, and in terms of the amount they're down," he says.

Among 19 categories of funds that focus on stocks, only those specializing in health-care companies have been up for the year.

The nine funds in the health-care category have benefitted from the technological advances that have buoyed the stocks of many health-care companies.

What surprises Green most about the mutual-fund industry's poor performance is that "the year started with such high hopes" -- thanks to such developments as the tumbling of the Berlin Wall.

Through Dec. 12, the Lipper Analytical Services index of stock funds had fallen 6.92 percent, vs. a 24.5 percent drop over the corresponding period of 1974. The worst performances in between occurred in 1981 (a 1.3 percent fall) and 1984 (down 2 percent).

REBOUND LIKELY? One fund manager who is betting that the worst is over -- barring an outright depression -- is Shelby Davis of the New York Venture Fund, which specializes in stocks that tend to be out of favor. He believes that the Fed will do what it takes to make a rescue; it already cut the discount and the federal funds rates, which in turn should free up cash that can be used for investing.

"My point is that the stock market is a leading indicator and you have to conclude the Fed wants the leading indicators to turn around," he says.

With interest rates and housing prices falling -- fixed mortgage rates are near the relatively low 1976 levels -- he's buying shares in Oakland, Calif.-based Golden West Financial, Boston's State Street Bank, Republic Bank of New York, Fannie Mae and Freddie Mac, all of which he says have among "the lowest costs and the most tightly run organizations" in the financial-services business.

TECH TALKS: When I last talked with Baltimore-based T. Rowe Price's technology-stock guru Roger McNamee, in November, he was starting to nibble on tech stocks again, with Apple Computer at the top of his shopping list.

McNamee's comments were noteworthy, since he had panned the company for two years. Subsequently, Apple jumped 30 percent.

With such a big profit, you would think McNamee would take the money and run, but he's as committed to them as ever, and describes Apple as still being "pretty cheap."

Part of his outlook reflects his forecast for Apple's earnings, which he believes could rise to $5 a share in 1992 versus this year's $3.77. According to that scenario, he thinks the stock would rise to $75. Apple closed yesterday at $44, up 2 1/8 , after receiving a "strong buy" recommendation from Alex. Brown & Sons.

"For 7 1/2 years, big cap stocks outperformed small cap, and I think the recession will change that sentiment," he says. "And short-interest in some of these small stocks is so large that if fundamentals are any good at all, the stocks will rise."

CRYSTAL BALL: Dick Cheney, vice chairman of the Hill & Knowlton public-relations firm, recently shared his new economic indicator with a group of Silicon Valley executives.

"Let's call it the analyst-resume indicator," he says -- meaning that the economy and stock market will do poorly when lots of analysts are fired.

"I'm not sure exactly whether it's a leading indicator or a lagging indicator, but I think it's portentous for the price of your stock, and it may have more far-reaching implications for the health of U.S. business as well."

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