Performing poorly is not easy in 1995

MUTUAL FUNDS

October 08, 1995|By CHICAGO TRIBUNE

If there's anything mutual fund investors don't expect, it's consistency in the stock market. Yet that's mostly what 1995 has delivered so far, with mostly pleasing results.

Technology stocks, and technology-oriented stock mutual funds, again led a rally through the third quarter, followed closely by the stocks of health care related firms.

Technology stocks have been strong all year, with mutual funds specializing in this area delivering a stunning 60 percent total return in 1995 so far, according to Morningstar Inc., the Chicago-based mutual fund publishing concern.

While most mutual fund investors don't buy specialty funds, many investors of regular diversified U.S. stock funds have participated in the technology-led rally anyway.

Any portfolio managers worth their fees have been loading up on technology stocks all year, helping to push the average gain for U.S. stock funds to almost 9 percent in the third quarter alone and 27 percent in 1995 so far, according to Morningstar.

The big question, of course, is whether the rally in technology stocks has played itself out and whether all mutual fund portfolio managers will recognize, in time, a decline in the offing.

"It's still a growth environment, but it's not as robust as it was," said John Rekenthaler, publisher of Morningstar Investor.

Mr. Rekenthaler said he sides with some fund experts who have predicted that some high-flying technology stocks will stumble this fall amid disappointments in third-quarter earnings.

But generally, Mr. Rekenthaler said, "You couldn't help but make money in the third quarter. If you didn't make money, fire that manager."

Even investors in stock funds with an international flavor, which haven't had a great year, recovered nicely in the third quarter, with an average return of almost 5 percent.

International funds have gained an average of 7 percent for the year so far.

Bond funds faltered slightly in the quarter, which Mr. Rekenthaler said he sees as a "hiccup" in the bond market's generally positive outlook because of prospects of continued low inflation.

Tax-free municipal bond investors saw their funds return an average 2.3 percent while taxable corporate bond funds offered an average of 1.8 percent.

The overall gains in stocks and stock mutual funds in the third quarter carried an added bonus for many fund managers, who struggled through the first half of 1995 to beat the S&P 500 average and -- more importantly -- the low-cost, passively managed index funds that are based on the stocks that make up the index.

The average U.S. stock fund outperformed the S&P 500 by more than a percentage point in the third quarter, although the average fund still lags the index for the year so far.

Index funds have been hot performers and hot sellers all year, much to the embarrassment of the managers of actively invested funds who are paid high sums for their expertise in stock picking.

When they fail to beat the no-brainer index funds, investors start to question the managers' worth.

Leading the general U.S. stock funds, as tracked by Morningstar, were two startup funds.

Wasatch Micro-Cap Fund, based in Salt Lake City, generated an enviable almost 26 percent return in the quarter, its first full quarter in operation, putting it first on Morningstar's list of general U.S. stock funds.

The fund specializes in companies with less than $200 million market capitalization that have good growth potential, said Robert Gardiner, its co-manager.

Many companies that currently fit that bill are technology firms, he said, adding that technology stocks now make up about a quarter of the fund portfolio.

Closely following the Wasatch fund on the Morningstar list was another startup, PBHG Select Equity, which opened for business in April and posted a 24.5 percent return in the third quarter.

Technology stocks make up half the funds' holdings while health-care related stocks make up about 18 percent, said James McCall, portfolio manager for the Wayne, Pa.-based fund, part of Pilgrim Baxter & Associates.

Also among the top general funds were Alger Capital Appreciation, with a 22.6 percent return; Putnam OTC Emerging Growth A, M and B funds, all posting nearly 21 percent; and PBHG Large Cap Growth, with a 20.5 percent return.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.