Health, Biotech Stock Funds Led Way Among Mutuals in First Quarter

Small mutual funds that invest in the little guys of American business fared best as a group in the first quarter of 1989, with health and biotechnology stock funds leading the pack.

But world income funds, which hold foreign currencies and bonds, actually lost money because of the U.S. dollar’s appreciation against the Japanese yen and major European currencies.

Among funds that primarily invest in common stocks, the top performers tended to put their money into the securities of speculative, often smallers firms, said A. Michael Lipper, president of Lipper Analytical Services. “They took the risks, they got the numbers,” he said.

The nation’s 40 top-performing funds in the first quarter had assets of less than $500 million, said Donald J. Phillips, editor of Mutual Fund Values, a Chicago-based advisory service. Such funds tend to invest in fewer stocks than the giants and may do very well or very badly as a result, he said. “Usually what you see at the top and bottom are the weirdos,” he said.

World Income Funds Fared Worst

Figures distributed by Lipper Analytical, a Summit, N.J., firm that tracks mutual fund performance, showed increases for most mutual funds that invest in common stock. The average equity fund climbed 6.15%.

Still, the stocks in the major market indexes, on the average, fared even better. The Dow Jones industrial index posted a 6.81% return, including reinvested dividends, while the Standard & Poor’s 500 index racked up a 7.08% return.

Many equity fund managers failed to beat the indexes because they have made the conservative decision this year to invest more of their money in cash and bonds, which produced less impressive gains than the stock market, Lipper said.

Fixed income funds, which account for nearly half of the assets managed by U.S. mutual funds, managed only a 1.17% overall return. These bond funds fared poorly because rising interest rates drove down bond prices.

Pinched by escalating foreign interest rates and weakening foreign currencies, world income funds were the worst performing group of all, falling 2.2%.

The best-performing industry group among the mutual funds during the quarter, health and biotechnology stocks, posted an 11.04% gain for the period. The strong showing reflected Wall Street’s belated recognition of the profits being chalked up by health companies, Phillips said.

Both the top two mutual funds in the first quarter took advantage of the run-up in health stocks. At Alger Small Capital Fund, which leaped 20.21% during the period, the best performing stock was FHP International, a Fountain Valley-based health maintenance organization. The $4.4-million fund’s investments in cellular telephone and fast-food businesses also prospered, fund manager David D. Alger said.

Kaufmann Fund, up 18.92% for the quarter and 62.96% for the last 12 months, has 35% of its assets in companies providing medical services, and plans to increase that proportion, said Lawrence Auriana, a co-manager of the fund.

International Cash Portfolios, which is managed by Huntington Advisers in Pasadena, ran four of the 10 worst mutual funds. Each of the four money-losing funds keeps all of its assets in short-term, money market instruments of a single foreign country, said Huntington President David P. Gould.

Investment results thus reflect only the rise and fall of that country’s currency, and not decisions by the fund manager, Gould added. “We like to say we don’t take credit when we do real well, and we hope we aren’t blamed when we don’t.”

MUTUAL FUND PERFORMANCE

(Appreciation plus reinvested income and capital gains)

QUARTER ENDED MAR. 31, 1989 Top Performers Alger Small Capital: +20.21%

Kaufmann Fund: +18.92 Eagle Growth Shares: +18.40 Delaware Group: Trend Fund: +18.36 Twentieth Century: Ultra Investors: +18.13 Vista Funds: Capital Growth: +18.05 Fidelity Select Medical: +17.45 Founders: Frontier Fund: +17.32 Lehman Capital Fund: +17.07 Fidelity Select Broadcast: +16.95 S&P; 500 (dividends reinvested): +7.08% All funds average: +4.30% Worst Performers

International Cash: Swiss Franc: -8.98%

T. Rowe Price International Bond: -6.08 International Cash: D-Mark Cash: -5.87 International Cash: Yen Cash: -5.31 Merrill Retirement Global Bond Fund B: -5.06 Merrill Retirement Global Bond Fund A: -4.88 TransAtlantic Income: -4.88 Fairfield Fund: -4.62 Alliance Technology: -4.37 International Cash: Sterling Cash: -4.37 YEAR ENDED MAR. 31, 1989 Top Performers

Kaufmann Fund: +62.96%

SFT: Odd Lot Fund: +54.23 Vista Fds: Growth & Income: +41.93 Vista Funds: Capital Growth: +39.21 Gintel Capital Appreciation: +37.86 Columbia Special: +35.28 Baron Asset Fund: +34.77 Harbor International Fund: +34.21 Scudder Capital Growth: +33.83 Fidelity Select Trans: +33.64 S&P; 500 (dividends reinvested): +18.09 All funds average: +9.94 Worst Performers

Strategic Gold/Minerals: -22.10%

Strategic Investments: -22.02 International Cash: Swiss Franc: -16.45 Steadman Oceanographic: -15.86 National Precious Metals: -13.53 United Services Gold Shares: -12.55 SLH Precious Metals & Minerals: -11.36 ISI Growth Fund: -9.79 Fidelity Select Electronics: -9.71 United Services New Prospector -9.56 FIVE YEARS ENDED MAR. 31, 1989 Top Performers New England Zenith Capital Growth: +416.31%

Merrill Lynch Pacific Fund Class A: +231.57 Japan Fund: +208.73 Trustees Commingled International: +192.66 Prudential-Bache Utility: +192.46 PaineWebber Classic Atlas: +183.36 Alliance International: +179.89 Vanguard World: Intl Growth: +177.89 Evergreen Limited Market: +177.58 T. Rowe Price International Fund: +176.42 S&P; 500 (dividends reinvested): +123.71 All funds average: +84.61 Worst Performers 44 Wall Street Fund: -71.06%

Strategic Investments: -58.07 American Heritage Fund: -57.04 Steadman Oceanographic: -52.58 Dividend/Growth Fund: Laser & Tech: -42.53 US Gold Shares: -38.76 Strategic Gold/Minerals: -37.53 Steadman American Industry: -33.83 First Investors Discovery: -29.59 Financial Port: Gold: -26.86 GROUP PERFORMANCE (periods ended Mar. 31, 1989)

Quarter Year Five Years Health/Biotechnology Funds +11.04% +11.89 % +123.48% Natural Resources Funds +8.63 +10.68 +57.32 Specialty/Miscellaneous Funds +7.97 +16.30 +104.55 Small Company Growth Funds +7.66 +12.73 +73.73 Capital Appreciation Funds +6.90 +12.42 +81.28 Growth Funds +6.87 +13.55 +87.98 Growth & Income Funds +5.89 +14.18 +101.16 Equity Income Funds +5.27 +14.07 +96.86 Science & Technology Funds +4.82 +7.12 +52.13 Convertible Securities Funds +4.54 +10.04 +73.77 Option Income Funds +4.41 +13.28 +72.92 Gold Oriented Funds +4.28 -5.39 -3.11 Option Growth Funds +3.95 +5.55 +81.28 Balanced Funds +3.83 +10.18 +94.17 Global Funds +3.68 +10.13 +122.45 International Funds +3.30 +11.18 +162.96 Income Funds +3.04 +9.52 +82.41 Utility Funds +2.25 +12.83 +123.86 Fixed Income Funds +1.17 +5.31 +67.97 World Income Funds -2.20 +0.88 +118.35 Average all funds +4.30 +9.94 +84.61 S&P; 500 (dividends reinvested) +7.08 +18.09 +123.71

Source: Lipper Analytical Services