Well-picked small stocks can still give good yields

Andrew Leckey

January 20, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Think small and think financial services.

Those were the winning tickets in stock mutual funds in 1992.

Already, however, there's concern that it may have been too much of a good thing.

Overall fund performance would have been lackluster had not small company growth funds exploded for a 16 percent gain in the fourth quarter and financial services funds risen 35 percent for the year.

As a result, Americans who put a record $69 billion into stock funds in 1992 were rewarded with an average return of 8.9 percent.

Such good fortune could have a negative effect on investing psychology in 1993, some experts fear.

"I'm a little scared by the fact the small-capitalization stock sector seems to be getting very hot, frenzied and publicized," said Robert Sanborn, portfolio manager of the second-ranked Oakmark Fund, up 48.9 percent for 1992. "Whenever there's a consensus, that's often not the place I want to be."

Emphasizing stock in companies selling at a discount to their long-term value, Oakmark saw cable system owner Liberty Media skyrocket 279 percent and insurer Horace Mann Educators Corp. rise 29 percent. The fund more recently emphasized undervalued defense stocks such as Lockheed Corp., up 30 percent. Judicious stock-picking, not bandwagon investing, will be the key in 1993, Mr. Sanborn believes.

Caution about small stocks is shared by A. Michael Lipper, president of Lipper Analytical Services, which tracks the nation's funds.

"Enthusiasm for small company stocks is all right now, so long as it doesn't overexcite things and lead to artificial inflating of over-the-counter stocks in 1993," said Mr. Lipper. "In addition, financial services funds have been among the leaders for eight of nine quarters, so remember that trees don't grow to the sky."

The average stock fund's 1992 performance pales in comparison to the 1991 average return of 36 percent and 15-year average yield of 16 percent. But 1992 was the second consecutive year stock funds beat the S&P 500.

Thank some long shots for that.

"The demise of the thrift and banking businesses has been greatly exaggerated," said David Ellison, manager for Fidelity Select Savings & Loan Portfolio, up 57.83 percent to lead the pack in 1992. "The thrift business is going to survive and strengthen and there are a lot of good buys."

Once considered investment poison, S&L portfolio holdings such as Neworld Bancorp last year rose 165 percent, NS Bancorp 62 percent and Cragin Financial 57 percent.

"Bank stocks are inexpensive and there's a tremendous number, making it easier to find undiscovered choices," added James Schmidt, manager for John Hancock Freedom Regional Bank Fund "B," up 47.37 percent. "I also think we're going to see a lot of merger activity for years."

Among the fund's gainers were Roosevelt Financial Group, up 156 percent, Equimark Corp., up 361 percent, and Commonwealth Bancshares, up 73 percent.

Top-performing funds in 1992, according to Lipper, were:

* Fidelity Select Savings & Loan Portfolio, Boston; $218 million in assets; 3 percent "load" (initial sales charge); $2,500 minimum initial investment; up 57.83 percent.

* Oakmark Fund, Harris Associates, Chicago; $342 million in assets; no load; $1,000 minimum; up 48.90 percent.

* Fidelity Select Regional Banks Portfolio "B," Boston; $240 million in assets; 3 percent load; $2,500 minimum; up 48.53 percent.

* John Hancock Freedom Regional Bank Fund "B," Boston; $72 million in assets; 4 percent backend load declining through six years; $1,000 minimum; 47.37 percent.

* Fidelity Select Financial Services Portfolio, Boston; $133 million in assets; 3 percent load; $2,500 minimum; up 42.82 percent.

* Heartland Value Fund, Milwaukee; $52 million in assets; no load until mid-February 1993; $1,000 minimum; up 42.48 percent.

* Fidelity Select Automotive Portfolio, Boston; $81 million in assets; 3 percent load; $2,500 minimum; up 41.57 percent.

* PaineWebber Regional Financial Growth Funds "A" and "B," New York; $47 million in total assets; 4.5 percent load on "A" and 5 percent backend load for "B"; $1,000 minimum; "A" up 38.68 percent and "B" up 37.82 percent.

* Fidelity Select Software & Computer Services Portfolio, Boston; $140 million in assets; 3 percent load; $2,500 minimum; up 35.54 percent.

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