Bank stocks pay off for mutual fund Freedom's yield gets top ranking

May 20, 1992|By David Conn | David Conn,Lipper Analytical ServicesStaff Writer

The nation's top-performing mutual fund for the year that ended in March got there by investing in small regional banks, and the fund's director said yesterday that he expects continuing solid returns for the next few years at least.

"Bank stocks are attractive because there'll be lots of merger activity in the next couple of years," said James K. Schmidt, the portfolio manager of the Freedom Regional Bank Fund, a $69 million mutual fund that ranked No. 1 among the 1,917 taxable mutual funds rated by Lipper Analytical Services.

The top ranking was based on the fund's 54.19 percent return for the 12 months that ended March 31. Such a precisely defined period can be deceptive, however: Freedom Regional Bank Fund failed to make Lipper's top 25 list for the first quarter of this year or for the five years that ended in March.

In the past year, however, Mr. Schmidt's portfolio, a "load" fund -- that is, one that charges a sales fee -- offered by Boston-based Freedom Capital Management Corp., got a boost from merger activity. From May 1991 to last month, the stocks of 14 of the 100 or so bank companies in the fund rose because of mergers or news of possible mergers, he said. The average gain for those stocks was 78.7 percent.

Still, he said he doesn't buy stocks based on the possibility of acquisitions. Even discounting the price increases from mergers, said, his fund was up about 120 percent since it began in late 1985.

"I look at the takeovers as gravy, as excess return," Mr. Schmidt said.

That's why he doesn't like MNC Financial Inc. as an investment, despite the numerous acquisition rumors surrounding the Baltimore-based banking company. "At MNC, I think, you're betting too much on a takeover," he explained. "And it'll be too hard to make money [on the stock] without a takeover."

Mr. Schmidt was in town yesterday as part of a multicity "roadshow" to tout his fund to brokers. He wasn't promising a repeat performance as No. 1 next year. But he said the continuing consolidation of the banking industry bodes well for the stocks of medium-sized banks for the near term.

"Banks in overlapping markets are making their mergers work by achieving economies of scale," he said. "Really what it amounts to is they're laying people off."

It's good for banks because it means less competition, Mr. Schmidt said, which means lenders can pay lower rates to keep customers whose certificates of deposit are coming due. It doesn't necessarily mean good news for consumers, who will have fewer choices, he acknowledged.

Top mutual funds

The best performing funds based on returns for one-year period ending March 31, 1992.

Fund .. .. .. .. .. .. .. .. Return

1) Freedom:

Regional Bank .. .. .. .. ..54.19%

2) Fidelity Select

Regional Banks .. .. .. .. 53.64%

3) American Heritage

Fund .. .. .. .. .. .. .. ..50.02%

4) Dean Witter

High Yield .. .. .. .. .. ..49.87%

Main Street:

Income and Growth .. .. .. 49.66%

6) Fidelity Select:

Automotive .. .. .. .. .. ..48.06%

7) National: Bond.. .. .. ..47.24%

8) CGM:

Capital Development .. .. .. 46.31%

9) Fidelity Select:

Savings and Loan .. .. .. .. 45.47%

Delaware Group:

Trend Fund .. .. .. .. .. .. 43.45%

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.