Top funds in Md. are high tech Poorest performers are funds for Asia, emerging markets

Big Microsoft investor is No. 1

Some European funds did well in survey of 142 mutual funds

July 19, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF

The top-performing Maryland mutual funds used the same recipe to rack up big gains in the first half of the year: They invested heavily in Microsoft Corp., Cisco Systems, America Online and other sizzling technology and communications stocks.

It's no surprise the best return came from Rydex Series-OTC, which pumped 24 percent of its $670 million in assets under management into Microsoft.

The fund, which is similar to an index fund because it invests in the Nasdaq 100 benchmark, returned 35.96 percent for the first six months of the year, according to CDA/Wiesenberger, a mutual fund tracking service in Rockville.

"We did pretty well," said Michael Byrum, senior portfolio manager at Rydex Series Trust in Rockville.

Microsoft, whose stock price rose nearly 70 percent in the first half of the year, is "almost like a freight train. I don't know that there has been anything even remotely close to its performance," Byrum said.

Rydex more than doubled its return over the same period a year ago, and it beat not only the 11.7 percent average return of all aggressive mutual funds, but also the 20.6 percent average return posted by technology and communications funds.

In a survey for The Sun, CDA/Wiesenberger tracked 142 mutual funds that have been offered to the public for at least one year and are operated by 13 Maryland families of mutual funds.

In addition to Rydex Series-OTC, other top-performing funds included Flag Investors Communications Fund, which returned 27.94 percent; T. Rowe Price's European Stock Fund, up 24.23; T. Rowe Price's Media & Telecommunications Fund, up 23.97 percent; and the Legg Mason Value Trust Navigator, up 23.94 percent.

Not all were successful

While managers of these hot funds savored the first half of the year, others were left with a bitter taste in their mouths.

Richard H. Fontaine of Towson, who ran three mutual funds, including the Fontaine Global Growth Fund, sold them in May after sustaining heavy losses in 1997.

"It was the only thing that we could do," said Fontaine, who now manages money for private clients. "We had to do something. We took it in the neck in the gold market. We got clobbered. That's just life."

Funds that concentrated on overseas markets, especially in Asia, Eastern Europe and Latin America, were pounded, too. The average emerging market equity mutual fund was down 15.9 percent for the first half of the year, according to CDA.

Biggest loser

T. Rowe Price's New Asia Fund led the losers on the list, declining 21.60 percent. It was followed by T. Rowe Price's Emerging Markets Stock Fund, down 16.10 percent; Legg Mason's Emerging Markets Trust, down 15.33 percent; T. Rowe Price's Latin America Fund, down 15.23 percent, and Rydex Series-Ursa Fund, down 11.91 percent.

"It's tough sledding," said George Murnaghan, executive vice president at Rowe Price-Fleming International, which advises Price's international mutual funds. "There has been nowhere to hide. We are in an environment where people have become very cautious about any emerging market exposure."

New Asia, for example, tried to keep the bleeding to a minimum by investing in high-quality companies, primarily in Hong Kong and Singapore, Murnaghan said.

Although the fund performed better than other funds in its nationwide peer group, it still was hammered.

"Those stocks haven't provided as much defensive cover as we might have hoped," he said. "Clearly, we didn't expect things to get as bad as they have."

Spreading problems

The problems in Asia spread to Latin America and hurt Price's Latin America Fund, which was down 15.23 percent after a 40.68 percent gain in the first half of 1997.

Murnaghan expects Latin American companies to recover far more quickly than Asian ones.

"In large part, the [Latin American] companies are undergoing very substantial restructuring to improve their profitability and efficiency," he said. "We like Latin America quite a bit."

But Murnaghan is not thrilled with prospects in Asia because problems could drag on for years and drag the U.S. economy down, too.

There were some bright spots for overseas investors. Price's European Stock Fund returned 24.23 percent and was among the top-five performers. It was followed by Legg Mason's International Equity Trust, which returned 18.08 percent, and Price's International Discovery Fund, which was up 16.08 percent.

Europe's strengthening economy and robust corporate profits propelled Price's European Fund.

"By and large, the story for Europe is a very positive one," Murnaghan said. "We remain quite optimistic about Europe" over the next several years.

High-tech optimists

Optimism is high among the portfolio managers who run technology and telecommunications funds. They see those companies growing rapidly and few problems to hold back the U.S. economy. "The sector fundamentally is one of the best for the overall economy," said Brian D. Stansky, who manages Price's Media & Telecommunications Fund, which was up 23.97 percent.

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