Mutuals are 50-50 deals

Andrew Leckey

December 31, 1991|By Andrew Leckey | Andrew Leckey,Tribune Media

Bigger isn't necessarily better.

The nation's 10 largest stock mutual funds have been a fifty-fifty proposition in 1991. Half have outperformed the Standard & Poor's 500, half haven't.

To their credit, however, most big funds failing to outperform the market haven't missed by much.

They remain the most respectable of mutual funds. The practice of placing top-flight portfolio management over these vehicles continues to pay off, overcoming the problem that staggering size makes it difficult to maneuver quickly.

Giant funds still gain assets at a healthy clip. New investors keep them popular because the funds' reputations stamp them as safe and solid, less likely to be volatile than smaller, flashier funds.

Their asset size prohibits them from taking a large position in any company, because it's illegal to gain controlling interest (any fund with billions of dollars in assets could easily buy out a $5 million to $10 million firm).

"We're forced to be diverse because we can't buy too much of a small-capitalization company and because we have our own requirement that we can't place more than 25 percent in one industry," said James Stowers III, executive vice president of Twentieth Century Investors. "Overall, I consider that quite positive."

Such diversity doesn't permit explosive jumps in value possible in smaller funds, their performance affected by upward momentum of a few holdings. Managers of big funds have a lot on their minds and hundreds of holdings to track daily.

"Our size gives us room to be more adventuresome, to pick and choose among stocks," said David Trippe, portfolio manager of the Pioneer II fund. "We currently have 15 percent of our portfolio in overseas stocks spread across 17 countries."

Expecting a rocky 1992, Trippe predicts a small market correction. Quality technology companies, such as Intel Corp. and Intergraph Corp., will look good because prices will be lower, he believes. He's also big on agricultural stocks such as Inspiration Resources, Potash Corp. Saskatchewan and W.W. Grainger because they're good performers within a farm economy that now has stabilized.

"Our size makes it possible for us to be research-intensive, spending $40 million annually on research," said Peter Langer, vice president of Capital Research & Management, which runs several large funds. "We're able to buy a stock with a three- to six-year perspective, even if the market has observed its potential and it's a bit pricey."

Big winners for those three funds have included Merck & Co., Philip Morris Cos. and Fannie Mae.

Ranked according to size, here's the performance of the nation's largest stock funds in 1991 tracked by Morningstar Mutual Funds:

Fidelity Magellan, Boston, $17 billion in assets, 3 percent "load" (initial sales charge), $2,500 minimum initial investment, up 27.71 percent.

The Investment Co. of America, Los Angeles, $8.9 billion in assets, 5.75 percent load, $250 minimum initial investment, up 16.46 percent.

Windsor Fund, Valley Forge, Pa., $7.8 billion in assets, currently closed to new investors, up 19.32 percent.

Washington Mutual Investors Fund, Washington, D.C., $7.4 billion in in assets, 5.75 percent load, $250 minimum initial investment, up 13.44 percent.

Fidelity Puritan, Boston, $5 billion in assets, 2 percent load, $2,500 minimum initial investment, up 16.99 percent.

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