'93 equity fund leaders: small cap, international PERSONAL FINANCE

MUTUAL FUNDS

October 10, 1993|By WERNER RENBERG | WERNER RENBERG,1993 By WERNER RENBERG

Up 18.1 percent and 5.2 percent, down 2.6 and 0.04 percent.

The first two are the total returns for the first nine and the latest three months of 1993 for the Standard & Poor's/BARRA Value Index, which measures performance of the stocks in the S&P 500 Index whose share prices are lowest in relation to book values.

The second two are the total returns for the same periods for the S&P/BARRA Growth Index, which measures performance of the remaining S&P 500 stocks with the highest price-to-book ratios. (Each index accounts for half of the total capitalization of the 500 stocks.)

These figures tell you a lot about the stock market's behavior this year. And they may help you to evaluate the performance of your equity mutual funds, whose returns for the periods ended Sept. 30 have been reported in recent days.

But they may not suffice. You also may need to know that the Russell 2000 Index, a leading small-company stock index, had a return of 15.9 percent for the first nine months -- midway between Russell 2000 Value's 20.7 percent and the 2000's Growth 10.5 percent returns.

Then, too, there's the 31.7 percent return of Morgan Stanley Capital International's Europe, Australia and Far East (EAFE) Index. It reflects the performance, in U.S. dollars, of the major foreign stock markets, which have awakened after years of slumber.

Scanning such data, you can easily draw four inferences:

* The U.S. stock market hasn't been as terrible this year as some had forecast. The S&P 500's annualized nine-month rate of about 10 percent was close to its long-run average return.

* Funds concentrated in growth stocks may have fared poorly, while those concentrated in value stocks should have excelled.

* Funds concentrated in small or medium-size firms should have done better than those concentrated in stocks of large ones.

* Funds owning diversified portfolios of foreign stocks were likely to do better than diversified funds that only own U.S. stocks.

All told, it has been a good year -- so far -- for most equity funds.

The 1,201 general equity funds that account for 82 percent of equity fund assets had an average return of 10 percent for the first three quarters, exceeding the S&P 500, according to Lipper Analytical Services. Of 1,751 equity funds, 1,119 did at least that well. (But 103 lost money.)

But what happens when you go beyond the totals to look at average returns for various fund categories -- with which you also should compare funds performance?

Among general equity fund categories, small-company growth funds did indeed lead, with a 13.7 percent average. Diversified international funds averaged 25.1 percent (exceeded by Japan and Pacific region funds, which had returns of 42.9 and 32.7 percent, respectively.)

The growth vs. value picture was not as clear-cut, however.

The growth and income fund category, which includes many value-oriented funds, averaged only 8.8 percent, while growth funds averaged 8.0 percent, and the more aggressive capital appreciation category, 12.6 percent -- both better than you would have expected.

How come?

For one thing, the averages obscure wide ranges of performance within the groups. Some growth and income funds beat the average by large margins, while some growth funds had poor results.

For the bond market in general, 1993's first nine months also have been gratifying, as indicated by the 9.9 percent total return of Salomon Brothers' Broad Investment Grade (BIG) Bond Index.

As you study your portfolio to see if any changes are warranted, don't let recent returns lead you to unrealistic expectations. Bear in mind the risks inherent in today's high bond and stock prices, to be sure, but also remember the length of your investment horizon. The longer your horizon, the greater is your ability to tolerate risk.

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