High-tech funds were dominant in 1994 returns

January 13, 1995|By ANDREW LECKEY

Americans who stashed their money under the mattress in 1994 fared better than most folks who invested in stock mutual funds.

The holder of the average stock fund suffered a 1.69 percent decline in the value of holdings last year, the first negative return since 1990.

The best that can be said about that is it was better than the corresponding 3.70 percent average decline in the value of a taxable bond fund.

Certainly no one's laughing anymore at those "boring" money market funds, whose investors earned an average of 3.76 percent for the year.

"Cash was king in 1994, and the only stock groups with double-digit gains were the Japanese and technology funds, both of which can be volatile," noted A. Michael Lipper, president of the Lipper Analytical Services fund-tracking firm. Still, terming last year's overall decline "rather minimal," Mr. Lipper has a longer-term expectation of 8 percent to 10 percent annual returns from equity funds and 6 percent to 8 percent returns from fixed-rate investments. Not overwhelming, but steady.

Perhaps what 1994 proved is that it's important to take a diversified approach to one's investments, since any single category or instrument can falter at times.

Technology, best known for its risks, was dominant. Top performer Seligman Communications & Information Fund benefited from a 300 percent gain in Tencor Instruments stock and a 200 percent gain by Alliance Semiconductor.

"We had a large weighting in the semiconductor capital equipment industry and quite a few of our holdings doubled or tripled," explained Paul Wick, the fund's portfolio manager. "While the economy should slow this year, technology isn't really a cyclical industry, so it's less an issue."

Govett Smaller Companies Fund, second-ranked for the year and tops in the fourth quarter, benefited from gains by Cascade Communications and Ascend Communications. "We look for growth stocks in any industry, though we focus more on #F technology, medical and consumer-related stocks," said fund manager Garrett Van Wagoner. "The economy will probably be slowing in 1995, but a lot of the companies we've invested in are doing outstanding business."

Top-performing stock funds for 1994 among those with reasonable minimum investment requirements, according to Lipper, were:

* Seligman Communications & Information Fund, Class A, New York, $306 million in assets; 4.75 percent "load" (initial sales charge); $1,000 minimum initial investment; up 35.30 percent.

* Govett Smaller Companies Fund, San Francisco; $68 million; 4.95 percent load; $500 minimum; up 28.74 percent.

* Alliance Technology Fund, Class A, Secaucus, N.J.; $213 million; 4.25 percent load; $250 minimum; up 28.51 percent.

* Merrill Lynch Technology Fund, Class A, New York; $261 million; 5.25 percent load; $1,000 minimum; up 26.63 percent.

* Capstone Nikko Japan Fund, New York; $3.3 million; 4.75 percent load; $200 minimum; up 24.27 percent.

These Seligman, Alliance and Merrill Lynch funds have other classes of shares, with different fee structures but comparable returns.

"Our strategy of picking from the Japanese market's worst performers of the past eight years worked well," said Shigakazu Kurishima, chairman of Nikko Capital Management U.S.A., which runs the Capstone Nikko Japan Fund. "Stocks such as Asahi Chemical and Nippon Electric had excellent gains."

Best fourth-quarter returns were:

* Govett Smaller Companies Fund (see one-year data); up 18.12 percent.

* Alliance Technology, Class A; (see one-year data); up 14.25 percent.

* First American Technology Fund, Class A, Appleton, Wis.; $114,000; declining redemption fee; $1,000 minimum; up 11.93 percent.

* Hartwell Emerging Growth Fund, Class A, Boston; $132 million; 5.75 percent load; $1,000 minimum; up 11.89 percent.

"The bad news about investing today is that you must watch carefully how companies mature and change," said Peter Anastos, co-manager of Alliance Technology Fund. "The good news is that companies are constantly changing, improving and offering more for less."

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