Market Watch : The Mutual Fund Winners of 1990: Can They Repeat?
Health care or nowhere.
That pretty much sums up the 1990 winning formula for stock mutual fund investors.
Of 27 categories of mutual funds in the Lipper Analytical annual rankings, only one stock fund group--health and biotechnology--finished the year with a gain: up 19.4%, on average. The average general stock fund lost 6.3%.
But market leadership, as always, remains a moving target. The dawn of the new year brought a sharp selloff in most of the health-care stocks that led the stock market in 1990.
Can the health/biotech funds repeat in 1991?
“You have to have a multi-year horizon with these funds,” answers Michael Gordon, the No. 1 stock fund manager of 1990. His $225-million Boston-based Fidelity Select Biotech fund rose a stunning 44.4% last year.
Biotech was a winner because many of the companies began to make real money last year, as their first drugs hit the market after years of development. The clear biotech leader was Thousand Oaks-based Amgen Inc. ($60-OTC), which was Gordon’s biggest holding all year. Amgen’s white blood cell-boosting drug has become a huge hit.
Biotech and other drug stocks may become overvalued on a short-term basis, Gordon admits. But he still believes that, long term, the profit stream from these companies guarantees that the stocks will gain.
John Kaweske, whose $152-million Financial Portfolio Health fund in Denver was the year’s fourth-best stock fund--it was up 25.8%--also argues that strong earnings ultimately will bring investors back to drug and medical-care stocks.
He also sees many new investment opportunities in health care beyond drugs. In particular, Kaweske looks for companies that are bringing health-care costs down. For example, Atlanta-based T2 Medical ($27.75-OTC) is a leader in home infusion therapy, which allows patients to treat themselves, Kaweske says.
He also likes the mail-order pharmacy business, which he says allows patients to buy drugs for 25% to 35% less than at the corner drug store. Two leaders there: Diagnostek ($12.625-NYSE) in Albuquerque and Medco Containment Services ($29-OTC) in Fair Lawn, N.J.
Outside of health care, only two other mutual fund groups posted major gains last year, and both were non-stock funds:
* Currency funds. These new funds enable investors to bet on the movement of foreign currencies versus the dollar. Last year, as the British pound rocketed against the dollar, the Fidelity Pound Performance fund jumped 36.4%, making it the No. 2 fund overall, according to fund-tracker Lipper Analytical. German mark funds also were big gainers.
Obviously, these funds are only for speculators, or for investors looking for a way to hedge their portfolios against big dollar moves. “We have attracted a pretty sophisticated investor with these,” admits Gail Eisenkraft, vice president for marketing at Fidelity.
* World income funds. Another relatively new group, these funds invest in bonds of foreign governments and foreign companies. The payoff here can be two-fold: Interest rates in some countries overseas are much higher than in the United States; and any decline in the dollar automatically boosts the value of foreign bonds held by U.S. investors.
The average world income fund returned 14.3% in 1990. The best of the lot was the Chicago-based Kemper Global Income fund, up 22.7%. “The weak dollar was a big factor in the success of this fund,” says Peter Jacobs, director of product management for Kemper.
The Kemper fund now yields around 10% and is heavily invested in bonds of such countries as Spain, Italy and France.
But before you jump into a world-income fund, remember that you’re at risk from turns in the dollar and from any rise in interest rates overseas (which would depress the value of lower-yielding older bonds in the funds).
“I’d be worried about investors who put too much of their money in these funds,” cautions Don Phillips, editor of Mutual Fund Values newsletter in Chicago.
TIPS FOR FUND INVESTORS
Many investors find themselves frustrated when they try to shop for mutual funds. Where do you go for information? Some ideas:
* The Mutual Fund Education Alliance, a group sponsored by funds that sell their shares directly to the public, offers an Investor’s Guide to Low-Cost Mutual Funds. Price: $5. Write 1900 Erie, Suite 120, Kansas City, Mo. 64116. Or phone (816) 471-1454.
* The American Assn. of Individual Investors offers various guides and kits. For prices and other information, write 625 N. Michigan Ave., Chicago. 60611. Or phone (312) 280-0170.
* Mutual Fund Values newsletter offers timely updates on the fund industry. For trial subscription information, write 53 W. Jackson, Chicago. 60604.
* If you know the name of a particular fund or fund family, but don’t know how to reach it, check if the fund has a toll-free 800 phone number. Phone (800) 555-1212 for toll-free directory information.
4TH QTR.’S BEST FUNDS
Fund name: Return Fidelity Select Devl: +29.7% Unified Growth Fund: +27.8 Fidelity Select Tech: +27.6 Fidelity Select Computer: +25.1 Fidelity Select Software: +23.4 Fidelity Select Medical: +22.0 Equity Port: Growth: +21.8 Financial Port: Health: +21.2 MFS Lifetime Emer Gro: +20.9 Wasatch: Aggressive Eqty: +20.4
YEAR’S BEST FUNDS
Fund name: Return Fidelity Bio Tech: +44.4% Fidelity Pound Perform: +36.4 Shearson Curr: Pound LP: +35.3 Financial Port: Health: +25.8 Fidelity Select Health: +24.3 Kemper Global Income: +22.7 Equity Strategies: +22.5 Shearson Curr: D-Mark LP: +21.7 Fidelity D-Mark Perform: +21.2 Scudder Global: Intl Bond: +21.1
