Mutual Funds Slump in Quarter : Performance Reflects Lackluster Market Since Crash
Since last October’s stock crash, sales of mutual funds have slumped markedly--despite generally good performances by most funds. But based on the latest third-quarter performance results, released Thursday, investors who have been shunning funds now may not feel quite so bad about not buying.
For the first time this year, funds performed almost uniformly poorly, according to Lipper Analytical Services of Summit, N.J. Reflecting a lackluster stock market in which just about every major stock index declined, the average general equity fund fell 0.73% in the latest three-month period ended Sept. 30. That decline came after gains of 5.4% and 7.77% in the second and first quarters, respectively.
The more popular fixed-income funds--which invest in bonds, government securities and other interest-paying vehicles--gained a respectable but unexciting 1.71% in the quarter, following gains of 1.34% and 3.73% in the second and first quarters, respectively. Most of the top-performing groups in the quarter were funds investing at least partly in bonds or other income-oriented securities.
But A. Michael Lipper, president of Lipper Analytical, said the stock fund results should not be viewed as discouraging. Stock funds were due to have an off period, he said.
Sales Are Down
“The overall numbers are mild,” Lipper said. “After two strong quarters, we didn’t roll over and go down (sharply). It’s somewhat encouraging.”
Nonetheless, the results are likely to do little to encourage investors to boost their purchases of funds. Fund sales--along with sales of stocks in general--continue to languish in a post-crash slump.
Sales of stock, bond and income mutual funds fell in August to $6.8 billion, down from $13.3 billion in the year-ago month. But withdrawals were even higher. That made August the sixth month this year of net outflows in stock funds--meaning that investors pulled out more money than they put in--and the second month since last October’s crash of net outflows in bond and income funds.
The results showed again that equity funds as a group have a hard time beating the major market indexes. The decline of 0.73% for general equity funds compared to a gain of 0.33% for the Standard & Poor’s 500-stock index and a loss of 0.37% for the Dow Jones industrial index, each with dividends reinvested.
The results also showed that groups leading the pack in some periods can easily become laggards later.
Such was the case with gold funds, which invest in stocks of gold-mining companies. After leading all fund groups in 1987, they continued to slump in the third quarter. Thanks to falling gold prices and reduced inflationary expectations, gold funds posted a 10.4% decline, making them the quarter’s worst-performing group.
66% Post Losses
Another reversal was posted by science and technology funds. They registered a drop of 6.32% in the third quarter after topping the list of best performers in the second quarter with a 7.47% rise.
All in all, 10 of 15 stock and stock-oriented fund groups posted losses.
The best-performing group in the quarter was utility-stock funds, which were up 2.01%, thanks in part to their high dividends and to lower energy prices.
Among individual funds, the quarter’s biggest winner was Kaufmann Fund, an aggressive no-load fund investing in small-company stocks that boasted a gain of 18.63%. That followed a 25.93% gain in the second quarter, when it also ranked first in performance among individual funds.
The fund, which was nearly bankrupt in 1986 when it had only $5,000 in assets, invests in a small number of companies with the potential of high sales and earnings growth due in part to unique market positions. More than two-thirds of the 23 issues in Kaufmann’s portfolio rose in the quarter--defying the overall slump in small company stocks.
Its biggest winner was Spectramed, a medical products company that was acquired by a British firm during the quarter for $12 a share, nearly three times the average price that Kaufmann Fund paid, said Lawrence Auriana, one of the fund’s two portfolio managers.
“We’ve done nothing out of the ordinary; we’re just executing our philosophy,” Auriana said. He noted that the fund’s assets grew during the third quarter to $4.7 million from $2.7 million, thanks largely to new purchases by investors impressed by the fund’s strong second-quarter performance.
Funds that use value-oriented investment strategies--such as buying stocks with low prices relative to their earnings and net worth--also did well, says Joe Mansueto, president of Morningstar Inc., a Chicago firm that tracks fund performance. Among these value-oriented funds, Clipper Fund rose 4.8%, Selected American Shares gained 4.37%, Windsor II advanced 4.29%, Lindner Dividend added 4.05%, Mutual Shares jumped 3.86% and Janus Value increased 3.4%, Mansueto said.
The 10 biggest individual equity funds, however, posted a decidedly mixed performance, Mansueto said. Fidelity Magellan, the largest equity mutual fund, gained only 0.48%. Others among the top group included Windsor Fund (up 2.15%), Fidelity Puritan (up 2.12%), Investment Co. of America (up 1.28%), Fidelity Equity Income (up 0.96%), Templeton World (down 1.86%), Pioneer II (up 0.27%), Affiliated Fund (down 1.09%), Washington Mutual Investors (up 0.88%), and Dreyfus Fund (down 1.56%).
The biggest individual loser in the third quarter was Strategic Investments, a gold fund that declined 16.22%. That followed an 18.82% drop in the second quarter, when it was the second-worst performer.
MUTUAL FUND PERFORMANCE (Appreciation plus reinvested income and capital gains, listed in percent) QUARTER ENDED Sept. 30, 1988 Top Performers Kaufmann Fund: +18.63 SFT Group: Odd Lot Fund: +12.36 Equity Strategies: +8.87 ABT Security Income: +7.17 Century Shares Trust: +7.02 Idex Fund II: +6.79 Vista Funds: Growth & Income: +6.59 Fidelity Value Fund: +6.51 Fidelity Select Restaurant: +6.32 Idex Fund: +6.04 S&P; 500 (dividends reinvested): +0.33 All funds average: -0.24 Worst Performers Strategic Investments: -16.22 Strategic Gold/Minerals: -14.46 United Services Gold Shares: -14.44 United Services New Prospector: -14.29 Fidelity Select Electronic: -14.17 Fidelity Select Computers: -14.13 Shearson Lehman Precious Metals: -14.06 Van Eck Gold/Resources: -13.91 Oberweis Emerging Growth: -13.84 Fidelity Select Technology: -13.70 YEAR ENDED Sept. 30, 1988 Top Performers Oppenheimer Ninety-Ten: +37.50 Benham Target 2010: +33.28 DFA Group: Japan Small Co.: +30.76 Benham Target 2015: +29.79 Benham Target 2005: +29.17 First Inv US Govt Plus-1: +27.14 Benham Target 2000: +24.25 Putnam Global Govt Inc: +20.86 Scudder Zero Target 2000: +20.54 Mackenzie Fixed Income: +19.70 S&P; 500 (dividends reinvested): -12.38 All funds average: -4.08 Worst Performers
American Asset Yield Fund: -76.53 Strategic Investments: -56.70 United Services Gold Shares: -51.35 Steadman Oceanographic: -50.08 USAA Gold: -48.89 Financial Portfolio: Gold: -48.17 United Services Prospector: -44.07 Fidelity Select Precious Metals: -43.24 United Services New Prospector: -43.10 Van Eck Gold/Resources: -42.90 FIVE YEARS ENDED Sept. 30, 1988 Top Performers New England Zenith Cap Growth: +379.73 Japan Fund: +260.92 Merrill Lynch Pacific: +255.33 BB&K; International: +203.87 Trustees’ Commingled Intl: +200.16 Vanguard World: Intl Growth: +198.75 T. Rowe Price Intl: +175.85 Prudential-Bache Utility: +168.56 Alliance International: +168.13 Putnam Intl Equities: +161.59 S&P; 500 (dividends reinvested): +98.66 All funds average: +64.90 Worst Performers 44 Wall Street: 84.08 American Heritage Fund: -61.41 Strategic Investments: -57.83 Steadman Oceanographic: -55.42 Dividend/Growth: Laser & Tech: -53.63 44 Wall Street Equity: -44.77 Steadman American Industry: -43.68 United Services Gold Shares: -42.95 Strategic Gold/Minerals: -39.98 First Investors Discovery: -39.58 GROUP PERFORMANCE (periods ended Sept. 30, 1988)
Quarter Year Five Year Utility Funds +2.01 +4.53 +102.51 Fixed Income Funds +1.71 +10.61 +67.86 Income Funds +1.67 +5.92 +67.37 Equity Income Funds +1.14 -4.76 +81.28 Option Income Funds +0.53 -6.32 +54.35 Balanced Funds +0.47 -2.51 +83.04 Growth & Income Funds +0.38 -7.03 +80.16 Health/Biotechnology Funds +0.09 -17.39 +58.95 World Income Funds -0.04 +9.57 +114.02 Specialty Funds -0.50 -9.59 +73.98 Convertible Securities Funds -0.72 -6.08 +58.84 Option Growth Funds -0.79 +0.96 +60.47 Growth Funds -0.96 -12.10 +57.50 Capital Appreciation Funds -1.60 -12.45 +44.56 International Funds -1.72 -11.99 +166.09 Global Funds -1.73 -13.85 +95.42 Small Company Growth Funds -2.48 -10.51 +36.77 Natural Resources Funds -3.10 -16.65 +45.74 Science & Technology Funds -6.32 -20.05 +19.56 Gold Oriented Funds -10.40 -34.70 -1.96 S&P; 500 (dividends reinvested) +0.33 -12.38 +98.66 All funds average -0.24 -4.08 +64.90
Source: Lipper Analytical Services
