Volatile times lie ahead for mutuals, analysts say

July 19, 1992|By Russ Stanton | Russ Stanton,Orange County Register


That's a common word used by analysts when discussing prospects for mutual funds these days.

History has a way of repeating itself, and that's what concerns Don Phillips, publisher of industry tracker Morningstar Mutual Funds in Chicago.

"Third quarters have been perilous times in recent years, and with stocks near all-time highs and bond yields at very low levels, the same may well prove true this year," Mr. Phillips noted.

Summertime may be thought of as rally time on Wall Street, but three of the past five summers have hurt stock-fund investors, while the bond market already may have entered a down phase, based on two indicators tracked by Lipper Analytical Services of New Jersey.

First, bond funds outgained money-market funds, which in turn outgained stock funds. In addition, individual funds that usually do well in down markets are posting better results than funds that normally lead in rising markets.

"Long-term investors would be wise to reduce their bond-fund holdings in favor of equity funds," Lipper advised.

But the second quarter wasn't kind to stocks. Overall, they fell for the second consecutive quarter, this time by 2.59 percent, according to Lipper. That follows a 0.8 percent dip in the January-March period, which followed a 31 percent gain last year.

Time to bail out, right? Not necessarily, the professionals said.

It may be time to plunge further into stock funds, especially for investors who believe the worst is over, six fund analysts said. Consider:

* 3 percent rates on passbook savings, certificates of deposit and money-market mutual funds.

* Many analysts expect a strong round of second-quarter earnings reports from many of the nation's biggest companies, if for no other reason than they're up against weak year-ago numbers.

* The presidential election enters the home stretch, and if the economic news out of Washington will have an upbeat slant to it, now's the time.

"If there's going to be a strong quarter this year, it has to be third quarter," Los Alamitos, Calif., fund analyst Charles Rother said.

He sees gains ahead for stock funds as well as bond funds that improved in the second quarter, with a 3.52 percent gain after a flat first quarter, according to Lipper.

Despite the second-quarter beating, stock funds remain a favorite of the six analysts polled to create two portfolios for today's economic climate -- one for preserving assets, one for growth.

Two stock funds -- Gabelli Asset and Janus -- appeared on more than one expert's recommended growth list as defensive moves against a bear market. The thinking goes that if a big sell-off does lie ahead, investors will ditch high-priced blue chips in search of undervalued or growth companies, stocks in which these funds specialize.

And the appearance of Twentieth Century Ultra Fund on two best-bet lists means now might also be the time for some bargain hunting. The fund was clobbered during the second quarter, falling 11 percent, and is down 27 percent from its peak in January.

Those not willing to risk getting burned twice with stocks may want to consider funds that focus on bonds, gold and cash. That's the road Seattle fund watcher Paul Merriman has taken.

International funds were a bright spot in the second quarter, climbing 4.32 percent, according to Lipper. China and Hong Kong, where economic liberals appear to be gaining the upper hand, are attracting much of the interest. Japanese funds, on the other hand, were among the worst performers because of that country's economic problems.

The gain in international funds wasn't lost on the panel. As a group, they increased their holdings by half, to 9 percent of their combined growth portfolios for the third quarter.

Half the panel members are sticking to their guns, making no changes in portfolios that are geared toward steady-paying stock (two picked Lindner Dividend) and bond funds on the conservative side, and bond and value-oriented funds on the growth side.

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