Environmental Mutual Fund Had Best Return in 2nd Quarter, Survey Finds
It paid to be “green” in the second quarter of 1990.
The top-performing mutual fund last quarter was the Schield Progressive Environment Fund, which invests in stocks of environmentally responsible waste management and landfill firms, according to Lipper Analytical Services’ quarterly ranking of mutual fund performance.
Progressive Environment, which debuted only in February, earned a 29.54% return during the second quarter. And the fund’s managers are optimistic.
“We don’t expect this kind of return to be repeated easily,” said Peter Camejo, president of Progressive Asset Management in Oakland. “But we expect our fund, and environmental investing in general, to do well. This is more proof that you can have a reasonable return and be socially conscious.”
Environmental funds on average earned an 11.08% return during the first six months of 1990, according to a separate ranking of 11 environmentally conscious mutual and trust funds. During the same period, the Dow Jones industrial average climbed 4.63% and the Standard & Poor’s index of 500 stocks inched up 1.31%.
Although Camejo expects socially conscious investing to continue to outperform the Dow Jones industrial average, in mutual fund investing, success can be fleeting.
Only six months ago, the hottest funds were those investing in gold, for example. Now gold funds dominate the list of worst performers.
“When you are investing in gold shares, volatility is what the public expects,” said Victor Flores, portfolio manager of two gold funds promoted by United Services Advisors Inc. of San Antonio. “There’s really not much you can do.”
United Services Gold Shares was the second-worst-performing mutual fund in the quarter ended June 30, posting a negative 16.53% return, according to Lipper. However, the same fund was the second-best performer, with a 29.9% return, during the fourth quarter of 1989.
What happened between then and now?
Gold prices have plunged, falling roughly $60 per ounce to $360. And Nelson Mandela, the charismatic leader of the African National Congress, has recently advocated nationalizing many businesses in South Africa, which has had a negative impact on South African gold mining stocks, Flores said.
Other gold funds were also hard hit. In fact, gold and other precious metals funds accounted for all 10 of the worst-performing mutual funds during the second quarter, posting negative returns ranging from 23.55% to 12.34%. Out of the 25 worst performers during the quarter, gold-oriented funds accounted for 23.
But strong-performing mutual funds came in many varieties this quarter. Funds investing in everything from landfills to medical technology and Japan posted double-digit returns.
Nevertheless, investment experts said nearly all the strongest funds had one thing in common: They invest in smaller companies that have strong growth potential.
“With the slowdown in merger and acquisition activity, investors are looking to smaller company stocks,” said William E. Donoghue, publisher of Donoghue’s Money Letter in Seattle. “There have been a number of smaller company stock funds that have been doing quite well simply because of the increased institutional interest.”
In the past, the nation’s biggest investors had focused on large, well-capitalized companies, added A. Michael Lipper, president of Lipper Analytical. Now, however, they are beginning to look for firms with greater potential for fast earnings growth.
Health and biotechnology firms fall into that category, as do pollution control stocks, said Richard Bernstein, manager of quantitative analysis at Merrill Lynch Capital Markets in New York. Bernstein expects these industry groups to continue to excel over the next several months.
However, mutual fund investors generally do better when they don’t chase the hottest funds, Lipper said. In fact, bottom-fishing with some of the worst performers can often produce handsome results, he said.
“On average, you are better buying off the bottom than off the top,” Lipper said. “At some point, I think it is reasonable to expect gold and natural resources funds to do better, but I don’t know whether it is going to be in this coming quarter,” he added.
But buying one quarter’s poorest performers in hope of a turnaround can also be risky, Lipper acknowledges. Some mutual funds have proven themselves extremely bad investments over time, he noted.
One example: Steadman Oceanographic fund lost 24.44% of its value over the past five years and lost more than 29% of its value over the past decade. At the same time, the Dow Jones industrial average and other market indexes have posted double- and triple-digit gains.
The problem, according to Lipper, is the fund was started at a time when some pessimistic investors believed that the ocean was the new frontier, ripe to be lived in and farmed by man. These theories have since lost their following, and companies that planned to develop housing and mine gold from the sea’s bottom have tanked.
“The only thing under water is the stocks,” Lipper said.
MUTUAL FUND PERFORMANCE (Appreciation plus reinvested income and capital gains, listed in percent)
QUARTER ENDED JUNE 30, 1990
Top Performers
Schield: Progressive Environment 29.54% Fidelity Select: Biotech 23.57 Bull & Bear Special Equities 22.38 Fidelity Select Medical 20.80 Financial Portfolio: Heath 18.95 Mim Mutual: Stock Appreciation 18.64 Putnam Health Science 18.35 Schield Port.: Aggressive Growth 17.93 Founders: Discovery Fund 17.80 Nomura Pacific Basin 17.72 S&P; 500 (dividends reinvested) 6.29 All equity funds average 5.53
Worst Performers
Strategic Investments -23.55% US Gold Shares -16.53 US New Prospector Fund -14.96 USAA Investment Trust: Gold -14.76 Thomson McKinn. Prec. Metals -13.28 Financial Portfolio: Gold -13.14 Kemper Gold Fund -12.99 Blanchard Precious Metals -12.89 Colonial Adv Strategies Gold -12.42 Van Eck: Gold/Resources -12.34
YEAR ENDED JUNE 30, 1990 Top Performers
Fidelity Select: Biotechnology 56.36% Financial Portfolio: Health 55.41 Equity Strategies 51.54 RCS Emerging Growth 47.45 Fidelity Select Electronics 46.75 T Rowe Price Int’l Discovery 46.19 Bull & Bear Special Equities 45.03 Financial Portfolio: Technology 44.74 DFA Group: Continental Small Co 44.11 Fidelity Select Energy Service 42.96 S&P; 500 (dividends reinvested) 16.46 All equity funds average 12.56
Worst Performers
Pilgrim Preferred -30.24% Security Income: High Yield -24.28 Alliance Bond: High Yield -23.81 Dean Witter High Yield -22.16 National Real Estate: Income -17.64 Rockwood Growth -15.86 Pacific Horizon: High Yield -15.21 American Capital High Yield -14.96 National Bond -14.86 Fidelity Select Broadcast -13.99
FIVE YEARS ENDED JUNE 30, 1990 Top Performers
Japan Fund 288.67% Fidelity Overseas 281.83 Oppenheimer Global Fund 272.45 GT Global Pacific 269.74 Kleinwort Benson: Int’l Equity 267.85 Trustees Commingled Int’l 256.03 T Rowe Price Int’l Stock 254.95 Vanguard World: Int’l Growth 252.48 GAM: International 251.24 Int’l Fund for Institutions 245.78 S&P; 500 (dividends reinvested) 122.06 All equity funds average 92.55
Worst Performers
Dividend/Growth: Growth Series -45.18% American Heritage Fund -44.19 Strategic Investments -40.46 44 Wall Street Fund -39.74 Strategic Gold/Minerals -38.38 Steadman Oceanographic -24.44 Steadman American Industry -24.37 US Locap Fund -16.06 Steadman Investment -13.99 Quantum Fund -9.79
GROUP PERFORMANCE (periods ended JUNE 30, 1990)
Quarter Year Five Years Health/Biotechnology Funds +17.11% +40.19% +162.68% Science & Technology Funds +11.08 +24.55 +88.07 Pacific Region Funds +9.34 +17.96 +227.12 European Region Funds +7.98 +27.59 NA International Funds +7.76 +20.00 +209.28 Small Company Growth Funds +7.52 +12.64 +72.42 Global Funds +7.45 +17.19 +137.10 Growth Funds +7.03 +13.70 +90.70 Specialty/Miscellaneous Funds +5.93 +11.13 +69.16 Capital Appreciation Funds +5.86 +11.33 +82.51 World Income Funds +4.76 +9.13 +123.21 Growth & Income Funds +4.73 +10.65 +91.84 Balanced Funds +4.31 +8.94 +78.40 Flexible Portfolio Funds +3.91 +8.75 +84.99 Global Flexible Portfolio Funds +3.50 +8.96 +72.99 Convertible Securities Funds +3.49 +5.63 +61.48 Mixed Income Funds +3.22 +6.40 +61.46 Fixed Income Funds +3.18 +4.08 +49.07 Financial Services Funds +3.04 +2.39 +59.65 Equity Income Funds +2.60 +6.72 +75.15 Income Funds +2.27 +3.28 +59.23 Option Income Funds +1.87 +4.33 +61.99 S&P; 500 (dividends reinvested) +6.29 +16.46 +122.06 All equity funds average +5.53 +12.56 +92.55
Source: Lipper Analytical Services
