Some low-risk funds are solid performers


If you've quit smoking, lost 10 pounds, cut fat out of your diet and started exercising, you know what it means to reduce risk. To take the same approach with your portfolio, you would strip away the most volatile investments -- such as technology-laden mutual funds -- that would probably plummet in a market downturn.

What you would replace them with, however, is not so obvious.

"It's easy to buy a low-risk fund," said Thurman L. Smith, editor of Equity Fund Outlook, a newsletter. "But that's not the ultimate goal of an investor. You have to make some money."

Though most low-risk stock funds have generated very low returns, at least a handful have managed to keep pace with the stockmarket during the last 10 years.

These funds are intended for the long run. Most are in the growth and income and equity income categories, meaning they have steady income from dividends or other sources to cushion them should stock prices fall.

Among the 340 diversified equity funds with 10-year records tracked by Morningstar Inc., 7 funds in the lowest 10 percent in risk have produced average returns of at least 14 percent a year -- roughly even with broad market gauges. There are many measures of risk. For this purpose, the proprietary scale from Morningstar was used. On its scale, the average for equity funds is 1.0, and to find the 10 percent with the lowest risk, Morningstar looked for funds with a risk measure of 0.7 or less.

The seven funds have fallen 30 percent less than the average equity fund in down months over the last 10 years.

Mutual Series

Run from the Short Hills, N.J., headquarters of investor Michael Price, the Mutual Series funds are perennial favorites of value investors. Three of the family's funds, Mutual Beacon, Mutual Qualified and Mutual Shares, made the low-risk, solid-performance list.

Bill Mahoney, an investment adviser at the Rise Co. in Oxford, Mass., said, "What I love about Price's funds right now is that they're really low in technology, so when the 20 percent correction hits, these funds shouldn't be hurt as much as other funds."

Each of the three funds has produced average total returns of more than 15 percent in the last decade, and none have a 10-year Morningstar risk measure over 0.55. That means they have roughly half the risk of the average diversified equity fund.

T. Rowe Price Equity-Income

"I love this fund," said Clint Willis, editor of the Independent T. Rowe Price Adviser newsletter. "You have two forms of protection on the downside: They buy really cheap stuff, and you've also got above-average income."

Since 1993, the fund has been managed solely by Brian Rogers. Before that, Tom Broadus was co-manager. They share a zeal for value, buying large company stocks when out of favor and holding on. The fund's performance record is third best on the low-risk list, with annual average returns of 15.36 percent over 10 years. The Morningstar risk measure is 0.60, meaning that, in market downturns, this equity income fund has fallen 40 percent less than the average equity fund.

Putnam Growth And Income

Managed since 1993 by Anthony Kreisel and David King, the Putnam fund has attributes of both the value and the growth styles of investing.

Once or often-controversial names such as Philip Morris, Eastman Kodak and Exxon abound in its portfolio, but it also has industrial stocks and utilities.

Having gained an average of 14.86 percent a year over the last decade, the Putnam fund is ahead about 29 percent this year. Its managers called the big bond rally of 1995, at one point holding 6 percent of assets in government bonds, then taking profits.

The portfolio is about 90 percent invested in the S&P 500. But with a Morningstar risk measure of 0.55, it is much less volatile than the S&P index.

Scudder Growth And Income

Howard Stein, the longtime boss at Scudder, has been bearish lTC since 1980, and most Scudder equity funds have been dismal performers as a result. This one, however, has a 10-year performance record of 14.28 percent a year and only 70 percent of the risk of the average equity fund.

Robert Hoffman, who has led a team of managers on the fund since 1991, produced a 2.6 percent gain last year, when most stock funds posted declines.

Part of the fund's success is a yield consistently one percentage point higher than the group average, gleaned both from high-yielding common stocks and from convertible securities, which may account for 20 percent of assets.


This little-known fund, with a mere $53.5 million of assets, has badly trailed the market in 1995. But as a tortoise, it hasn't lost the most important race, producing 14.27 percent average gains for investors since 1987.

The fund's management at Markston Investment Management in Newark has been in place since the mid-1980s, and it marches to its own drummer. The managers -- John Stone, Michael Mullarky and Roger Lob -- look for strong management, product and market-share dominance and a low stock price. The combination has produced very consistent returns and a Morningstar risk rating of 0.68.

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