Young expert knows how to judge the mutual funds

Andrew Leckey

June 02, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Mutual fund class is now in session.

The "professor" is Don Phillips, 31, publisher of the Morningstar Inc. publications, which grade the nation's funds for the average investor.

When Phillips joined in 1986 after graduate school, he was the only analyst in a three-employee operation that had started in the home of company President Joe Mansueto.

Then came the mutual fund explosion, with billions of dollars pouring into stock, bond and hybrid funds. Now Morningstar has 10 publications and a staff of 225.

"When I was in school, I thought I would be a professor," says the fresh-faced Phillips, sporting a canary yellow sweater more suited to academia than corporate America. "Now when I speak to groups, they're much more interested than would have been the case if I were discussing, say, 'Canterbury Tales.' "

Professors dispel myths. As Phillips leans back in his office chair, he lampoons the premise presented by some mutual fund companies that Boston-based Fidelity Investments is a one-trick company whose reputation is based mostly on the mighty Magellan Fund.

"We excluded Magellan from our computations and figured up the cumulative total return for diversified equity funds offered by all the nation's mutual fund companies," he says. "Even without Magellan, Fidelity's diversified stock funds had a cumulative total return from 1983 to 1992 of 417 percent, to lead the pack."

Ranking second was the Phoenix fund family at 388 percent, followed by the Twentieth Century funds, with a 372 percent gain. The average U.S. equity fund was up 258 percent.

Another Morningstar study considered the hypothesis that buying funds with veteran managers pays off. Going strictly by the numbers, the performance and risk rewards became clear.

"Funds guided by managers with greater than a 10-year history at the same fund score materially better than do funds with newer managers," says Phillips. "They also have lower expense ratios and less turnover of investments."

(An annual subscription to the 40,000-circulation Morningstar Mutual Funds, mailed biweekly for inclusion in a binder, is $395 for 26 issues. The 30,000-circulation 5-Star Investor monthly newsletter costs $65 annually. For information about these and other publications, contact Morningstar at 53 W. Jackson Blvd., Chicago 60604-9871.)

Of course, every professor has favorites.

Phillips' recommended growth-stock funds, including the following, "look off the beaten path" to find interesting stocks:

* Strong Opportunity Fund, Milwaukee, a no-load (no initial sales charge) fund managed the last two years by Dick Weiss and Carlene Murphy. Up 5.5 percent this year, it gained 23.4 percent in the last 12 months.

* Fidelity Contrafund, Boston, a 3 percent-load fund run by Will Danoff for more than two years. Up 9.55 percent in 1993, it was up 21.57 percent in the last year.

For investors worried about the stock market, Phillips suggests the following conservative balanced funds, which include stocks, bonds and other securities:

* Fidelity Balanced Fund, Boston, no load, run the last five years by Robert Haber, who is extremely worried about stock-market prospects. Most of his bearish portfolio is in cash and bonds; the stock component is only 25 percent, primarily small value stocks. Up 11.77 percent this year, the fund increased 18.28 percent the last 12 months.

* SoGen International, New York, 3.75 percent load, managed by Jean-Marie Eveillard, who for 14 years has found value around the world in bonds, cash and stocks. It's up 9.92 percent in 1993 and 15.78 percent for 12 months.

For bond investors, Phillips recommends:

* Loomis Sayles Bond Fund, Boston, no load, run the last two years by David Fuss. He favors corporate bonds, convertibles and government securities with an average credit rating of BB. Up 9.27 this year, it increased 19.16 percent in the last 12 months.

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