Growth or income? Some funds offer both

MUTUAL FUNDS

March 21, 1993|By 1993 By WERNER RENBERG

Whether you're invested in mutual funds to achieve capital growth or income, a fund that's managed to meet both goals may be just what you need to build the core of -- or to enhance -- your portfolio.

Growth and income funds, as they're commonly called, typically invest in common stocks of companies expected to generate increased earnings and to pay increased dividends. On the average, they provide solid performance without exposing you to high volatility.

Their share sales and assets exceed those of any other fund category, indicating the appeal of their approach.

The group is made up of 300 funds, but 10 account for half of its $140 billion in assets, according to Lipper Analytical Services. The largest: American Funds' Investment Company of America ($15.4 billion) and Washington Mutual Investors ($10.1 billion), Vanguard's Windsor Fund ($8.8 billion) and 500 Portfolio ($6.6 billion).

When stocks are hot, growth and income funds may fall behind funds that aim only at growth. But when the market undergoes a correction, income from the group's funds moderates any decline -- a point you may find reassuring if today's near-record stock prices make you uneasy.

Growth and income funds had an average annual total return of 14 percent over the last 10 years, beating the returns of other general equity fund groups but falling short of Standard & Poor's 500 Index's 16 percent, according to Lipper.

In the last five years, however, growth and income funds fell behind more aggressive equity funds. This was partly because growth stocks outperformed value stocks -- favored by many growth and income funds.

Still, some growth and income funds turned in impressive performances.

And, as you might suspect, they used a variety of strategies: value and growth, small and medium as well as large capitalization, or "cap" (a measure of company size calculated by multiplying share price by the number of shares outstanding).

Mark Tincher of Chase Manhattan Bank, portfolio manager of Vista Growth and Income Fund, whose average annual return of 32.1 percent gave it the No. 2 ranking among all funds for the 1988-1992 period, uses a computer valuation model to screen stocks.

Developed by the bank years ago, the model ranks 1,500 stocks to identify those that are the best values and that show signs of momentum in earnings and/or share prices. The top stocks are then analyzed further for purchases.

Fenimore Asset Management's Thomas O. Putnam, who runs FAM Value Fund from Cobleskill (near Cooperstown) in upstate New York, seeks values -- "under-recognized companies" at "bargain prices" -- among small-cap stocks.

Oriented to growth stocks, Monetta Fund of Wheaton, Ill., typically invests in 50 small- and medium-cap companies. John Rozinsky, vice president, attributes its disappointing performance of the last year to two factors: becoming defensive early by building up cash and being "overweighted" in health care and other stocks that went sour.

Looking for values among small- and medium-cap stocks, Robert Benson, manager of Pioneer Three, says he still can find good buys. His portfolio of 125 stocks is filled with companies that are "not household names," such as Unifi, which makes textile machinery.

Neuberger & Berman Guardian Fund has two portfolio managers: Kent Simons, who began to manage the fund over 10 years ago, and Lawrence Marx III, who joined him about five years ago. Together they look for stocks that carry low prices, Simons says, because the market is wrong about many of those companies.

Dividing up the workload by splitting sectors, they're able to come up not only with prominent prospects, such as AT&T and BankAmerica, their top two holdings, but also with companies such as Alleghany, a financial services company "followed by nobody."

Going on the assumption, as Simons put it, that "selling is indiscriminate when an industry goes out of favor," lately they have been buying drug stocks whose prices have been hammered.

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