Fund Focusing on Firms in County Seeks Approval

The sponsor of the Orange County Growth Fund--the first mutual fund consisting primarily of the stocks of Orange County corporations--isn’t troubled by forecasts of a fund industry shakeout.

Newport Securities, which filed Friday for Securities and Exchange Commission approval to launch the fund, figures it can provide an attractive market niche for California investors even if other funds fall by the wayside.

The proposed fund will join an increasingly crowded field of mutuals once it passes muster with the SEC, a process expected to take one to three months.

The new diversified fund will be one of nearly 2,150 mutual funds nationwide with total assets of almost $840 billion. The roster has grown from 564 funds with $134.8 billion in assets at the start of the decade.

Confident of Prospects

But Jeff Kilpatrick, president of Costa Mesa-based Newport Securities, said he is confident the proposed fund will fly.

Orange County is a hotbed of emerging public firms, Kilpatrick said, and any California resident with as little as $2,000 will be able to invest in the fund and ride the future wave of business activity in the county.

Despite the proliferation of mutual funds and predictions by some industry observers of an eventual shakeout, an analyst who tracks mutual fund performance said the future of the fund will ultimately depend on its performance.

Michael Lipper, president of Lipper Analytical Securities in New York, said the fund could succeed “if there is some reason for you to believe that the Orange County (stock) universe would do better than the rest of the universe and that these people could do a better job than others in picking out investments.”

After all, Lipper noted, “Orange County is not an undiscovered area,” and analysts from major brokerage houses are tracking many Orange County corporations from offices in Los Angeles and San Diego.

Kilpatrick said that he believes the county’s business community is one of the best in the nation and that his firm is one of the best qualified to choose the county’s most attractive stocks.

“A mutual fund’s progress and success has to be based on long-term investments,” Kilpatrick said. “And Orange County is not at the end of its growth but at the very beginning.”

The fund prospectus filed with the SEC states that the Orange County economy has grown nearly twice as fast as the national average, “resulting in a tripling of the county’s economic output over the past decade.”

The total value of all goods and services produced in Orange County--the regional equivalent of the gross national product--is projected to reach $50 billion this year, the prospectus states.

That level of activity ranks 10th among all U.S. metropolitan markets, exceeds the economic output of nearly half of the states and would place among the top 40 economies worldwide if Orange County were a nation, according to the prospectus.

And, Kilpatrick said, Newport Securities was founded on the premise that it would specialize in Orange County companies.

Kathryn Morrison, a spokeswoman at the Investment Company Institute, a Washington trade group, took issue with the contention that a shakeout in the mutual fund industry is inevitable.

“The market is too broad for that,” she said, noting that total assets are spread among a variety of stock, bond and money market funds.

Handful of Regional Funds

Despite the large number of investment vehicles, Morrison said the Orange County Growth Fund would be one of only a handful of regional stock funds.

At least 50% and as much as 90% of the fund’s assets will be invested in the stocks of Orange County companies, Kilpatrick said. The balance could be used to buy blue-chip stocks, such as IBM or AT&T.;

The fund will eventually contain the stocks of about 30 to 70 companies, Kilpatrick said. He expects to begin picking the stocks after the fund has accumulated about $1 million in initial investments.

According to the fund prospectus, Newport Securities will charge a 1.25% management fee for the first $30 million invested in the fund and a 0.75% fee for investments exceeding that amount.

A sliding-scale brokerage commission for buying fund shares will range from 5.75% for investments of less than $10,000 to 0.75% for investments of more than $1 million. Any brokerage house can process transactions, Kilpatrick said.