Few mutual fund newsletters beat the market

MUTUAL FUNDS

August 30, 1992|By WERNER RENBERG | WERNER RENBERG,SOURCES: The Hulbert Financial Digest, CDA Investment Technologies (Vanguard fund data)

When gold, gold stock and gold fund prices surged in mid-July, the funds constituting the Gold Fund Composite of Fabians' Telephone Switch Newsletter rose sufficiently to trigger "buy" signal.

Faithful subscribers -- who had been in money market funds since the "sell" signal of August 1991, and who earned 4 percent while gold funds were slipping -- switched back to funds on the recommended list.

In slightly less than a month, gold, gold stock and gold fund prices tumbled, and the newsletter flashed another "sell" signal. Those who followed it had lost more than 10 percent when they sold their new shares and reinvested the proceeds in their money market funds.

About one week later, when the Dow Jones industrial average plunged 50 points, TSN's Mutual Fund composite -- made up of Columbia Growth, Fidelity Contrafund, Financial Industrial Income, Janus and SteinRoe Special -- fell sharply, too, also triggering a "sell" signal.

Its followers had been more fortunate. TSN reckons that investment in these five funds since the composite's "buy" signal in January 1991 would have provided them a total return of 34 percent -- much higher than the 22 percent for Standard & Poor's 500 Index.

Will their joy be short-lived? That is, will the share prices of these diversified funds regain their upward momentum soon, whipsawing their investors, too -- and leaving them with tax liabilities for capital gains they may not have taken without the signal? Who knows?

TSN's signals also raise a broader question: Can such mutual fund newsletters really help you in investing for the long run by telling you which funds you should buy and when you should buy and sell them?

The question isn't easy to answer. There are a hundred or more letters, and the success of their recommendations is not easily measurable.

About 50 newsletters, however, recommend model fund portfolios whose performance not only can be measured but has been measured by another newsletter, The Hulbert Financial Digest of Alexandria, Va. (703-683-5905).

By subscribing to the newsletters and phoning their "hot lines," editor Mark Hulbert tracks their recommendations and calculates the results that subscribers would have achieved if they acted promptly.

Of the letters that offer one or more model fund portfolios, 20 have recommended a total of 40 portfolios that Hulbert has monitored for five years or longer.

Only eight of the 40 beat the 9.1 percent annual rate of total return of the Wilshire 5000 Index, reflecting the total U.S. stock market, over the last five years.

If you're interested in using such a letter, look beyond the performance figures to see if you find its approach compatible. Some prefer to remain fully invested, while others believe in market timing, going into cash when stocks head south.

The leading portfolio of the last five years, Fidelity Monitor's Growth Model, achieved its 13.8 percent annual return by using two or three Fidelity diversified equity and select funds at a time. Since March, it has been in Equity-Income II and Contrafund.

For his Select System, editor Jack Bowers has used one Select Portfolio at a time since 1989. Current choice: Telecommunications.

Peter Eliades has followed the same one-Select Portfolio policy in Stockmarket Cycles' model, but with a notable difference: He has been in cash most of the year. He most recently switched into cash on Aug. 6 after being invested about a month in `D Industrial Materials.

Investors Intelligence's Mutual Switch Fund Portfolio, which invests in Fidelity Select Portfolios in 20 percent increments, has been 20 percent in American Gold, 20 percent in Precious Metals and Minerals, and 60 percent cash for most of 1992. In June, editor Michael Burke recommended going totally into cash.

Since newsletter editors seem to find it as tough to beat the stock market indexes as mutual fund portfolio managers do, you may conclude that you'd be happy just to do as well as the market.

How? Invest in a fund, such as the Vanguard 500 Portfolio, which is managed to match the S&P 500, a benchmark for market performance.

By buying and holding it for the last five years, you would have beaten nearly all model portfolios and wouldn't have had to deal with switches and possible tax consequences and sales charges.

Top model portfolios

:.

As recommended by mutal fund newsletters

(ranked by 5-year performance)

.. .. .. .. .. .. .. .. .. .. .. .. .. .. Annual Rate Of Total Return .. .. .. .. .. .. .. .. .. .. Last .. .. .. .. .. .. .. Last

CNewsletter .. .. .. .. .. .. 3 Years .. .. .. .. .. .. .. 5 Years

Fidelity Monitor Growth Model .. .. .. 15.6% .. .. .. .. .. .. 13.8%

Professional Timing Service MF Model .. .. 17.8% .. .. .. .. .. 12.9%

Fidelity Monitor Select System .. .. .. .. .. 24.2% .. .. .. .. 12.1%

Investors Intelligence Switch Fund .. .. .. .. 11.3% .. .. . .. .. 11.3%

Stockmarket Cycles Mutual Fund .. .. .. .. .. 12.6% .. .. .. .. .. 11.1% Fund Exchange Fixed Income Bond .. .. .. .. .. 10.6% .. .. .. .. .. 10.2%

Marketarian Letter Portfolio for Traders .. .. .. 9.8% .. .. .. .. 10.1%

Fund Exchange Aggressive Growth Margined .. .. .. 12.7% .. .. .. 10.0%

Telephone Switch Newsletter MF Composite .. .. .. .. 11.2% .. .. .. 9.0%

Peter Dag Investment Letter Model .. .. .. .. .. .. 9.9% .. .. .. .. 8.9%

InvesTech Mutual Fund Advisor Model .. .. .. .. .. 11.4% .. .. .. .. 8.9%

Wilshire 5000 Index .. .. .. .. .. .. .. .. .. .. .. 11.2% .. .. .. .. 9.1% Vanguard Index Trust 500 Portfolio .. .. .. .. .. .. 12.1% .. .. .. .. 9.4%

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