Mutual Funds Buffeted by Global Turmoil : Investing: The hottest funds in the third quarter were invested in cash and gold. Technology and speculative stock funds turned ice cold.
In times of economic and political turmoil, cash is king.
Seldom has that point been driven home harder than in the third quarter of 1990. A month into the quarter, Iraq invaded Kuwait. The U.S. economy seemed to be slipping further into recession. Companies continued to report sorry earnings. And bank regulators indicated that the nation’s financial system is disturbingly sick.
The result: All of the 10 best-performing mutual funds were invested either in cash or precious metals, according to a quarterly ranking of mutual fund performance by Lipper Analytical Services in New York.
On the other hand, the worst performers were largely a conglomeration of previous quarters’ best performers--primarily technology funds and some speculative stock funds.
“The last shall be first and the first shall be last,” intoned Ed Bernstein, portfolio manager of Prudent Speculator: Leveraged fund. “When all else fails, quote the Bible.”
Bernstein notes that Prudent Speculator: Leveraged--the worst performer during the third quarter with a 46.63% loss--was one of the best performers in the second quarter. The fund borrows money to buy corporate stocks, so when the market is up, Prudent Speculator soars. And vice versa.
“It took us awhile to get off of leverage when the Iraq situation happened. And we also invest in small (company) stocks, which were hit much harder than (big company) stocks,” he said. “That’s our sorry tale of woe.”
Bernstein’s sad tale is by no means unique.
The third quarter was dismal for most funds and investment groups. Indeed, Lipper’s quarterly survey shows that only gold-oriented funds and world income funds--which invest in conservative, income-oriented international securities--posted positive performance during the quarter. All other groups--from equity income funds and small-company growth funds to natural resources funds and science and technology--lost money during the quarter, Lipper said.
The very worst: science and technology, down 25.11%; small-company growth funds, down 22.42%, and financial services funds, down 22.32%.
“It was not a simple quarter,” said Donald J. Phillips, editor of Mutual Fund Values in Chicago. “Just about every mainstream investment got hit.”
Phillips attributed the sorry performance to an unusual combination of events. The country has faced war, recession and banking woes in the past, but to suffer all three simultaneously has been too much for the markets to bear, he noted.
“This has been a wonderful year for disproving the best-laid plans” of investment managers, Phillips said. “You have seen a lot of very rational decisions rewarded with very severe penalties in the third quarter.”
For example, small-company stocks were looking comparatively cheap--usually a good time to buy. But the funds that invested in them got bludgeoned during the quarter. Aside from Prudent Speculator, Bull & Bear Special Equities was down 43.75%, and Shearson Lehman Bros. Small Cap fund was down 37.32%.
In previous quarters, technology funds had rallied also because they had become comparatively cheap. But these stocks, and the mutual funds that invest in them, also got hit during the third quarter, according to the Lipper analysis.
The one fund that did not fit the pattern of falling despite the fundamentals is Steadman Oceanographic, which ranks among the worst performers for the quarter, the year, the last five years and 10 years.
The only good news about Steadman is that few people buy into it, Phillips said. “Occasionally, somebody will turn up some Steadman shares in an attic,” Phillips said. “But, clearly with the record they have, investors are not going to buy those funds.”
What’s the prognosis for the fourth quarter? More of the same, according to the experts.
Charles Miller, who manages the quarter’s best-performing fund--Dreyfus Capital Value, up 12.96% for the quarter--says he’s still holding onto cash. They hit the top of the list last quarter by investing in income-oriented securities, such as short-term Treasury bills, and by buying options that soared in value as the U.S. and Japanese stock markets fell.
Miller believes that there is a capital shortage worldwide and that anyone who has ready access to hard currency will benefit. He also believes that the Japanese and U.S. markets will continue to fall. When interest rates go up, as he expects they will later this year, the value of stocks will drop further, he predicts. And that’s when he expects to get back into the stock market.
Added Janet Brown, managing editor of NoLoad Fund X in San Francisco: “I think this will continue for as long as the crisis in the Middle East continues. And I suspect it will not be solved in the next month.”
MUTUAL FUND PERFORMANCE (Appreciation plus reinvested income and capital gains, listed in percent)
QUARTER ENDED SEPT. 30, 1990
Top Performers
Dreyfus Capital Value 12.96 % Blanchard Precious Metals 11.68 Enterprise: Precious Metals Portfolio 11.30 Fidelity Yen Performance 11.24 First Australia: Pacific Rim Fund 10.82 Fidelity Pound Performance 10.73 Strategic Investments 10.27 USAA Investment Trust: Gold Fund 9.34 Int’l. Cash: Hard Currency Fund 9.12 Thomson M’Kinnon: Prec. Metals Cls B 9.05 S&P; 500 (dividends reinvested) -13.73 All equity funds average -14.91
Worst Performers
Prudent Speculator: Leveraged Fund -46.63% Bull & Bear Special Equities -43.75 Security Ultra Fund -41.16 Steadman Oceanographic -39.80 Shearson Lehman Sm. Capitalization -37.32 Security Omni Fund -35.50 Alliance Technology -33.21 SteinRoe Inv. Trust: Cap. Opportunities -33.14 Delaware Group: Trend Fund -32.67 Oberweis Emerging Growth -31.91
YEAR ENDED SEPT. 30, 1990
Top Performers
Equity Strategies 50.33 % Fidelity Select Energy Services 38.25 Fidelity Select Biotechnology 25.74 Scudder: International Bond Fund 19.97 Franklin Partners: Tax-Advantaged Int’l. 19.43 PaineWebber Inv: Master Global Fund 18.78 Van Eck: World Income Fund 18.47 Fidelity Select Energy Portfolio 18.19 Mass. Fin. Int’l. Trust: Bond Portfolio 17.78 International Cash: Global Cash 17.33 S&P; 500 (dividends reinvested) -9.24 All equity funds average -12.77
Worst Performers
Prudent Speculator: Leveraged Fund -51.38 % Steadman Oceanographic -47.85 Calvert Fund: Washington Area -43.91 Fidelity Select Financial -41.85 Fidelity Select S&L; Portfolio -41.69 Fidelity Select Regional Banks -40.59 Nikko Japan Tilt Fund -40.15 Security Ultra Fund -39.62 Fidelity Select Broadcast and Media -38.89 Shearson Lehman Pacific Fund -37.92
FIVE YEARS ENDED SEPT. 30, 1990
Top Performers
G.T. Global Japan 278.35 % Financial Portfolio: Health 217.48 G.T. Global Pacific 192.93 GAM: International 187.27 Merrill Lynch Pacific Fund: Class A 177.47 Japan Fund 176.40 Fidelity Overseas 176.26 GT Global International 176.23 Oppenheimer Global Fund 175.62 Nomura Pacific Basin 174.71 S&P; 500 (dividends reinvested) 99.75 All equity funds average 69.47
Worst Performers
American Heritage Fund -55.91 % Dividend/Growth: Growth Series -49.64 Steadman Oceanographic -47.39 Steadman American Industry -43.02 44 Wall Street Fund -41.27 U.S. LoCap Fund -34.63 Strategic Gold/Minerals -33.26 Fidelity Select Electronics Portfolio -22.23 Steadman Investment -18.69 Pilgrim Corp. Investors Fund -15.94
GROUP PERFORMANCE (periods ended Sept. 30, 1990)
Quarter Year Five Years World Income Funds +4.14% -9.90 % +117.95% Fixed Income Funds -0.81 +2.90 +44.62 Mixed Income Funds -5.10 -3.16 +54.15 Global Flexible Portfolio Funds -7.05 -5.10 +66.50 Income Funds -7.71 -7.55 +51.86 Balanced Funds -8.03 -5.11 +67.06 Flexible Portfolio Funds -8.96 -6.29 +61.78 Equity Income Funds -11.25 -11.45 +60.39 Health/Biotechnology Funds -11.25 +6.40 +139.68 Option Income Funds -11.61 -10.62 +46.87 Convertible Securities Funds -11.69 -11.48 +44.94 Growth and Income Funds -12.74 -10.84 +73.03 European Region Funds -16.05 -3.61 +154.95 Growth Funds -16.11 -13.34 +67.73 Capital Appreciation Funds -16.22 -15.25 +58.71 Global Funds -16.29 -12.67 +86.57 Specialty/Miscellaneous Funds -16.49 -14.67 +63.32 International Funds -17.36 -11.92 +131.02 Pacific Region Funds -18.79 -20.96 +171.03 Financial Services Funds -22.32 -29.01 +17.07 Small Company Growth Funds -22.42 -20.59 +41.01 Science and Technology Funds -25.11 -15.76 +55.66 S&P; 500 (dividends reinvested) -13.73 -9.24 +99.75 All equity funds average -14.91 -12.77 +69.47
Source: Lipper Analytical Services
