The dramatic flow of money into stock mutual funds in early 1992 unfortunately hasn't been rewarded with breathtaking performance.
Equity funds, coming off a 31 percent average return last year, slipped a fraction of a percent in the first quarter. A flat stock market was blamed. Adding insult to injury, last year's superstars, the health and biotechnology stocks, declined 9 percent in the quarter. Financial services stocks replaced them as the top performers.
"The contrarians who said a money-market fund would be the best-performing fund in 1992 may have been right after all," observed A. Michael Lipper, president of Lipper Analytical Services, which tracks the nation's funds.
"My expectations aren't terribly high for the second quarter either."
The winning fund managers are happy, yet very cautious about the market's near-term prospects.
Hopes for economic recovery helped the top-performing fund, Fidelity Select Automotive, post a 24.59 percent gain in the quarter. Its Chrysler stock rose 53 percent, Ford 38 percent and General Motors 31 percent. In related holdings, Walbro Corp. gained 57 percent, Magna International 46 percent and A.O. Smith 45 percent.
"Investors were looking for an economic rebound and the automotive industry was so depressed that it looked like a good opportunity," explained Steven Wymer, portfolio manager of the fund. The fund's gains were based on a steadfast belief in a modest 5 percent to 10 percent increase in car sales this year and next, Mr. Wymer noted. To continue the quarter's eye-popping stock returns, however, a considerably stronger sales performance than that will be required.
Targeting companies which were down in the dumps provided some pleasant surprises. The two Merrill Lynch Phoenix funds notched fifth and sixth place by emphasizing firms in financial difficulty.
"Our distressed bonds have done extremely well and, in stocks, National Semiconductor was up more than 100 percent and Anacomp Inc. rose 50 percent," said Robert Martorelli, portfolio manager of both funds. "Right now, the overall stock market looks like it's in trouble, with volume dried up and no real industry leaders."
Another hot fund, the American Heritage Fund, benefited from a 100 percent increase in the stock of Unysis Corp., an 80 percent increase in the California Jamar medical laser firm and a 50 percent gain by the OKC Limited Partnership in specialty oils.
American Heritage portfolio manager Heiko Thieme is concerned about the near-term prospects for the market.
"The stock market is a little tired right now and I believe 3050 on the Dow Jones industrial average will be the low from here to the end of May," said Mr. Thieme. "However, then I expect a powerful summer rally as part of the election cycle, driving the Dow to 3600."
Mr. Thieme's investment picks for the future, using a 12-month horizon, are Boeing Co. and International Business Machines.
Among the top-performing stock mutual funds in the first quarter of 1992, according to Mr. Lipper, were:
Fidelity Select Automotive, Boston; $47 million in assets; 3 percent load (initial sales charge); $1,000 minimum initial investment; up 24.59 percent.
Sherman Dean Fund, San Antonio; $2.5 million in assets; no load, $1,000 minimum, up 22.17 percent.
Heartland Value Fund, Milwaukee; $39 million in assets; 4.5 percent load; $1,000 minimum, up 20.05 percent.