Equity funds in '92 were a shadow of their old selves


December 27, 1992|By WERNER RENBERG

It won't be long before 1992 becomes history and you'll be seeing the total return data that will tell you how your equity mutual funds performed this year in absolute terms.

You'll also want to know how they did in relative terms -- and why.

Comparisons with performance data for similar funds and relevant stock market benchmarks, such as the Standard & Poor's 500 Index, help you to know whether your funds did as well as you could have expected when you consider their investment objectives and policies.

While, of course, anything can still happen, it appears that 1992 will have been a below-average -- but still positive -- year for stocks. Average prices are only slightly above where they were when the year began.

Add reinvested dividends, and you have a total return for the broad market of around 7 percent to date.

That's far below the S&P 500's total return of 30.5 percent for 1991, less than half of its 17 percent average annual return of the past decade, and even well below the long-term average of 10 percent.

Given such a flat -- but hardly static -- stock market, how did equity funds perform for their shareholders? From well to poorly.

With a total return of 7.3 percent through mid-December, the Vanguard 500 Portfolio, oldest and largest of the funds managed to track the S&P 500 Index, ranked 466th among the 1,212 equity funds monitored by Lipper Analytical Services throughout the year.

This means that almost two out of every five actively managed equity funds beat the index fund, with Harris Associates' Oakmark Fund setting the pace for general equity funds at 46.2 percent.

At the other extreme, Lipper reports negative returns for as many as 304 of the 746 equity funds that lagged the Vanguard 500 fund.

Since a year may be too short a span on which to base meaningful conclusions about a fund -- and its suitability for you -- it's worth noting that both leaders and laggards have run contrary to form.

Several with outstanding long-term records had an off year while others with modest long-term records emerged as leaders.

Still others had no long-term records at all.

Why did the leaders lead and the laggards lag?

To answer that usefully, you first have to divide equity funds into general and sector funds.

Clearly, sector funds depend on conditions in the sectors in which they're concentrated, as illustrated by the year's best and worst performers, Fidelity Select Savings and Loan Portfolio (51.2 percent through mid-December) and Lexington Strategic Investments, a gold fund (minus 59.7 percent).

When you analyze the performance of general equity funds and want to go beyond the Lipper classifications (capital appreciation, growth, small-company growth, growth and income, and equity income), you may get into investment policies that are less easily defined.

You may find it helpful to divide your funds on the basis of whether their stock selections emphasize growth (of companies' sales or earnings) or value (low price relative to earnings or assets).

For this purpose, you can use indexes calculated by Wilshire Associates of Santa Monica, Calif., that measure the performance of subsets of its universe of 5,000 stocks according to portfolio style.

Small-company stocks beat large-company stocks about 2-to-1

for the year's first 11 months, and value stocks beat growth stocks, although growth stocks have led recently.


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