High returns ignite fund sales

Andrew Leckey

February 18, 1992|By Andrew Leckey | Andrew Leckey,Tribune Media Services

The word is out on mutual funds, and American investors are scurrying to invest in record numbers.

Thanks to sparkling returns, fund assets last year zoomed to $1.3 trillion, an increase of $292 billion. There are a whopping 60 million shareholder accounts.

Mutual funds, pooling shareholder dollars, have provided professional management and the diversity of investing in many securities since the 1920s. An investor can cash in all or part of his shares at any time, so the popularity of various funds can change quickly.

Thirty-four percent of assets are in taxable money-market funds, 27 percent in stock funds, 21 percent in taxable bond funds and 18 percent in tax-exempt funds. Each grouping provides hundreds of choices, and directories listing them are available in public libraries.

The portion in stock funds is the highest in six years because of Wall Street's strong recent results.

One surprise over the past year has been the resurgence of funds investing in stocks of financial-services firms, such as banks. There has also been a comeback by high-yield "junk" bond funds. Both benefited from lower interest rates.

In 1992, the way is being led by funds investing in stocks of companies in the environmental field, science and technology, and real estate. Gains are great because they were underachievers last year. Small-company stocks continue to prosper, as they did last year.

"There seems to be a belief that we're entering an 'up' cycle for environmental companies, that technology will lead us out of recession and that homebuilders will be doing much better due to low mortgage rates," observed A. Michael Lipper, president of Lipper Analytical Services.

There's also a belief that junk bond funds, which stunned analysts with a 30 percent gain last year, may come up with a strong return of 10 percent to 15 percent this year.

"I see junk bond funds as the best 1992 performers, since prices are still depressed from problems such as the decline of Drexel Burnham Lambert and also some defaults," said Norman Fosback, president of the Fort Lauderdale, Fla.-based Institute for Econometric Research and editor of several investment letters.

Of course, junk bond funds will always be volatile, so they should constitute only a portion of a portfolio. Mr. Fosback's favorite funds are Vanguard High Yield Corporate Fund, Northeast Investor Trust Fund, Fidelity Spartan High Income, Financial High Yield Fund and T. Rowe Price High Yield. For conservative investors, he recommends Fidelity Spartan Money Market Fund.

In the rush toward funds, many investors don't take the time to research a fund's goals or its five-year performance record.

"Never buy just one fund, but rather a number of funds in order to spread out your risk, because no single fund does everything," Mr. Lipper advised. "In addition, too often mutual fund investors seek simplicity so much that they don't look at a fund's underlying investments."

Realize that initial costs vary when investing. For example, most "load" funds -- those with an initial sales charge -- charge 4 percent to 6 percent. Some are higher or lower, and there are also "no-load" funds with no such charges.

"I prefer no-load funds that you can buy directly," Mr. Fosback said. "There really is no reason to expect load funds bought through a broker to perform better than no-load funds."

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