Investors love Md. funds? Let them count the ways

11 state-based mutuals generated returns of at least 100% in '99

January 08, 2000|By Bill Atkinson | Bill Atkinson,SUN STAFF

For years, investors have been told not to expect more than a 10 percent return on their money in the stock market. But last year, people who invested in 11 Maryland-based mutual funds got that -- and got at least 10 times that.

Driven by the soaring market, those funds and 174 others in the country generated returns of at least 100 percent.

The Nevis Fund led Maryland funds with an eye-popping 286.5 percent return last year, while Bethesda's Monument Internet Fund and ProFunds UltraOTC returned 273.1 percent and 232.5 percent, respectively.

The gains are "way, way off the charts," said Russ Kinnel, senior fund analyst at Morningstar Inc., a Chicago-based firm that tracks mutual funds.

Of 7,000 equity mutual funds, 185 had returns of at least 100 percent last year, according to Lipper Inc., a New York-based firm that follows the industry.

That number is remarkable because only 21 funds in the 64-year history of the industry have had returns greater than 100 percent, according to Wiesenberger, a Rockville-based firm that tracks the mutual fund field.

However, investors should not count on always enjoying such returns, experts cautioned yesterday.

"Obviously, these kinds of numbers are not sustainable," said James S. Riepe, vice chairman of Baltimore-based T. Rowe Price Associates Inc. "They are wonderful, to be appreciated" -- but not to be expected.

The T. Rowe International Discovery Fund returned 155.03 percent, while its Japan Fund rose 112.71 percent, and the firm's Science & Technology Fund was up 100.99 percent.

It is the the first time since Price began offering mutual funds to investors about 50 years ago that any of its funds returned 100 percent or more.

In addition to the company's three funds that hit triple digits, Price had two others that narrowly missed -- the New Asia Fund, which returned 99.88 percent for the year, and its Media & Telecommunications Fund, which rose 93.09 percent.

The big winners were investors in the Nevis Fund.

The fund, started about a year ago for the children and grandchildren of wealthy investors in Baltimore-based Nevis Capital Management, ranked fifth among the country's best-performing mutual funds, according to Lipper.

"We were surprised just at the magnitude of the results," said Jon Baker, co-manager of the Nevis Fund, which started 1999 with $1 million in assets under management and now has about $100 million. "We went into the year feeling we almost had a coiled spring."

A `good' year

Alexander C. Cheung, who manages the Monument Internet Fund, which has about $162 million in assets under management, called the year "good."

"That kind of return is tough to come by," he said. "People shouldn't expect that kind of return anytime soon."

The year was unusually strong for mutual funds that invested in technology and overseas companies. Funds that avoided these areas performed poorly in many cases.

"In my 30 years, I have never seen the breadth of returns depending on the sector you were in," Riepe said. "You are sort of wondering what are investors thinking; is the guy who is running the conservative growth and income fund a bozo? Obviously not."

Gains in technology and science funds were across the board, said Charles A. Morris, who runs Price's Science & Technology Fund, which has about $12 billion in assets under management.

Semiconductor, software and computer hardware companies all were strong, he said.

Even many Internet companies, which have never earned a profit, became excellent investments last year, Morris said.

"I think people wanted to invest in dreams, in promises, as opposed to cash flow and earnings," he said.

Morris called the performance of the technology funds an "anom- aly" within the industry, with the average technology fund gaining about 130 percent last year. But that figure is inflated by smaller funds whose performances were boosted by a few good stocks in their portfolios.

"One hundred percent [return] -- that is not a kick in the teeth," Morris said.

Cheung expects technology stocks, especially those involving the Internet, to keep rising.

"The underlying Internet economy is growing dramatically," he said. "Whether we have an economic slow down -- it is not going to stop [technology stocks], because the rest of the world is going great guns."

A rebound overseas

While the run-up in technology was remarkable, the rebound in stocks overseas surprised many investors, who fled Japan, Indonesia, Thailand and other Asian countries in 1998 after their soaring economies crashed.

But investors stormed back with a vengeance last year, pumping money into overseas companies.

As a result, T. Rowe Price's International Discovery Fund and Japan Fund and Legg Mason Emerging Markets Trust had terrific gains.

"I think there is still some real opportunity" overseas, Riepe said.

Another type of emerging market fund, the Chapman DEM Equity Fund, also did well.

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