A Topsy-Turvy First Quarter for Mutual Funds : Securities: A survey finds that many of last year’s hot funds have cooled. And some cold ones have heated up.
Investors who stuck it out with some of the worst performing mutual funds over the past few years got their reward during the first quarter of 1990 as fund performance made a U-turn, turning once-sorry performers into stars, and vice versa.
Those who invested in technology stocks, which had been languishing for more than two years, did particularly well, with six of the top 10 mutual funds heavily invested in some sort of technology group. But investors who had been riding high with Japanese stocks got pummeled, according to Lipper Analytical Services’ quarterly survey of mutual fund performance released Wednesday.
“All the funds that were still playing last year’s game got hit very heavily,” said Don Phillips, editor of Mutual Fund Values in Chicago. “And those that were out of favor last year had a pretty good quarter.”
Pacific Region Funds, battered by record declines in the Japanese stock market, lost 13.18% of its value during the three-month period--by far the worst performance of any group, according to Lipper. Other hard-hit groups included gold-oriented funds, utilities, financial services and international funds.
However, it was also a poor quarter for mutual funds overall, with only two industry groups--science and technology, and European region funds--posting positive performances. Science and technology was up 2.68%, while European region funds rose a scant 0.83%, according to the survey.
On a brighter note, the average mutual fund outperformed the Standard & Poor’s 500-stock index. The S&P; 500 was down 3.01%, while the average mutual fund fell only 2.8%.
“I guess, for some people, the lesson this quarter was (values) don’t have to go up,” said A. Michael Lipper, president of Lipper Analytical.
Despite severe market drops in 1987 and 1989, stock performance has been phenomenally strong throughout the 1980s, Lipper said. And that has given investors the erroneous impression that investing in stock-oriented mutual funds is almost a sure road to riches.
But if the first quarter is any guide, the past decade’s performance is not likely to be repeated.
“If anything does well in 1990, we would think it would be those funds that invest in companies with strong earnings power,” Lipper said.
Even the top-performing mutual fund managers are not overly optimistic about the market’s chances for the year. The economy is still not terribly strong, they note, and that signals lower corporate earnings.
“Would I be surprised if computers were up 30% for the year and (Fidelity Select Computers) was a top-performing fund? No. But would I be surprised if they were up 60%? Absolutely,” said Larry Bowman, portfolio manager for Fidelity Investments’ computer and technology funds, which ranked as the nation’s fourth- and eighth-best performers for the quarter, respectively.
Fund experts said last quarter also illustrates why investors should never chase the best-performing funds.
Bowman, for example, acknowledges that the funds he manages have posted “yucky” performances over the past two years. During 1988, Fidelity’s computer fund lost 5.05% of its value. In 1989, the return was a mere 6.8%--well below the nearly 32% return of the S&P; 500 index. This quarter, the fund was up 15.82%.
Meanwhile, Strategic Investments was the top-performing fund last quarter with a 32.33% return, and it is now in the worst-performing group, with a loss of 21.10%.
The quarter’s other top-performing funds included Strategic Gold and Minerals, ranked first with a 19.15% return; Equity Strategies was second, with a 17.96% return, and Financial Strategic Portfolio: Technology was fifth, with a 10.56% return.
The worst performers: Nikko Japan Tilt Fund, which posted a 29.9% decline; SLH Investments: Pacific, down 21.43%; Strategic Investments, down 21.10%; DFA Group: Japan Small Company, down 19.91%, and Keystone International, down 17.52%.
MUTUAL FUND PERFORMANCE
(Appreciation plus reinvested income and capital gains, listed in percent)
QUARTER ENDED MAR. 31, 1990
Top Performers Strategic Gold/Minerals 19.15 Equity Strategies 17.96 Fidelity Select Electronic 17.03 Fidelity Select Computer 15.82 Financial Portfolio:Tech 10.56 Oberweis Emerging Growth 9.29 Strategic Silver 9.15 Fidelity Select Technology 8.29 Cowen Funds: Opportunity 8.08 Fidelity Select Automation 7.59 S&P; 500 (dividends reinvested) -3.01 All equity funds average -2.80
Worst Performers Nikko Japan Tilt Fund -29.90 SLH Inv: Pacific -21.43 Strategic Investments -21.10 DFA Group: Japan Small Company -19.91 Keystone International -17.52 Fidelity Select Broadcast -16.29 Japan Fund -16.10 Nomura Pacific Basin -15.62 Merrill Pacific B -15.36 Merrill Pacific A -15.20
YEAR ENDED MAR. 31, 1990
Top Performers Fidelity Select Energy 50.00 Vista Funds: Growth & Income 48.70 DFA Group: Contl Small Company 42.91 Alger: Small Capital 41.46 GT Global America 39.17 T Rowe Price Science & Technology 38.72 Financial Portfolio: Health 36.22 RCS Emerging Growth 34.40 GT Global Europe 34.34 T Rowe Price Int’l Discovery 34.25 S&P; 500 (dividends reinvested) 19.23 All equity funds average 13.15
Worst Performers Alliance Bond: High Yield -23.47 Dean Witter High Yield -20.66 Pilgrim Preferred -20.65 Security Income: High Yield -20.33 Prudent Speculator: Leveraged -18.45 American Cap High Yield -17.59 National Bond -17.29 Prudent Speculator: Large Cap -16.70 American Investment Income -16.48 DFA Group: UK Small Company -15.73
FIVE YEARS ENDED MAR. 31, 1990
Top Performers Fidelity Overseas 304.00 Trustees Commingled Int’l 258.05 GAM: International 252.64 T Rowe Price Int’l Stock 242.31 GT Global Pacific 241.35 Alliance International 239.97 Oppenheimer Global Fund 237.65 Japan Fund 237.49 Kleinwort Benson: Int’l Equity 236.39 Vanguard World: Int’l Growth 230.67 S&P; 500 (dividends reinvested) 124.28 All equity funds average 91.76
Worst Performers 44 Wall Street Fund -51.26 American Heritage Fund -50.56 Dividend/Growth: Growth Series -50.19 Strategic Gold/Minerals -41.80 Steadman Oceanographic -36.24 Strategic Investments -32.06 Steadman American Industry -28.93 US LoCap Fund -26.94 Steadman Investment -12.83 Strategic Silver -9.70
GROUP PERFORMANCE (periods ended MAR. 31, 1990)
Quarter Year Five Years Science & Technology Funds +2.68 +19.93 +74.70 European Region Funds +0.82 +22.37 N/A Natural Resources Funds -1.13 +20.29 +93.22 Small Company Growth Funds -1.39 +12.11 +64.37 Fixed Income Funds -1.40 +6.70 +55.19 Convertible Securities Funds -1.41 +6.62 +72.70 World Income Funds -1.54 +5.65 +135.49 Option Income Funds -1.56 +5.84 +65.35 Flexible Portfolio Funds -1.91 +11.01 +86.31 Health/Biotechnology Funds -2.04 +25.09 +150.74 Mixed Income Funds -2.11 +8.14 +59.91 Specialty Miscellaneous -2.11 +12.80 +72.47 Capital Appreciation Funds -2.26 +12.78 +80.76 Balanced Funds -2.29 +11.85 +84.96 Growth Funds -2.31 +14.52 +89.37 Global Flexible Portfolio -2.50 +10.10 +74.90 Growth & Income Funds -2.50 +13.15 +96.14 Equity Income Funds -3.09 +11.68 +83.59 Real Estate Funds -3.23 +0.58 +42.76 Income Funds -3.53 +7.39 +62.78 Global Funds -4.97 +11.22 +131.94 Utility Funds -5.09 +19.79 +95.82 S&P; 500 (dividends reinvested) -3.01 +19.23 +124.28 All equity funds average -2.80 +13.15 +91.76
Source: Lipper Analytical Securities Corp.
