Mutual Funds Stay on a Roll in Third Quarter : Securities: The average jump was 7.31%, leaving the yearly increase at almost 25%.
Stock mutual funds rewarded shareholders with another excellent quarter in the period ended Sept. 30, but many fund managers warn that the fun will soon end--at least for a while.
The average stock fund jumped 7.31% for the quarter, bringing the year-to-date rise to 24.89%, according to fund tracker Lipper Analytical Services in New York.
Earning 25% in stock funds over nine months is almost unheard-of. Annualize that, and it works out to a 12-month return of 35%, says Michael Lipper of Lipper Analytical. That kind of gain has occurred only in three of the past 31 years.
The message: Fund owners should prepare for a down fourth quarter. And new buyers should avoid investing too large a sum now and instead ease into favorite funds during the next few months.
The good news is that the summer gains were widespread. For example, European stock funds rebounded, helped by a sliding dollar, and utility funds rose sharply as interest rates fell.
But concern is growing because the third quarter’s biggest fund winners were mostly in the same areas that were hot in the first half of the year--small stocks in general, biotech and other health-care issues, and financial services.
The small-stock market’s performance boosted the average small stock fund 10.7% for the quarter. That pulled up the average return for all funds to 7.31%, well above the 5.26% return on the Standard & Poor’s 500 index, a benchmark for the broad market.
Fund owners can be happy they’re beating the market. But they also should be ready to give back some of those gains temporarily, some fund managers warn.
John Hartwell, whose New York-based Hartwell Emerging Growth Fund was the quarter’s second best (up 27%), is one of many pros who scored with such young health-care companies as physical therapy firm NovaCare and instrument maker Datascope.
Hartwell believes that the health care industry is a terrific long-term investment play. But he says the heights to which hungry investors have bid the stocks this year are “truly disturbing. . . . Trouble is just around the corner.” Like many other fund managers, he has begun cutting back on some stocks.
How other winning fund managers view the market now:
* Ken Heebner, CGM Capital Development Fund, Boston: His $300-million growth fund rose 24.6% for the quarter, paced by such high-flyers as U.S. Surgical, Telefonos de Mexico (the Mexican phone company) and close-out toy retailer Value Merchants. He also owned SciMed Life Systems, a medical catheter maker whose shares suddenly collapsed last week over patent worries.
Heebner won’t say whether he’s bailed out of SciMed, but he makes it clear that “I don’t think small stocks as a whole are cheap anymore.” In the fourth quarter, he says, “you might see us move toward more conservative stocks.”
* Rod Linafelter, Berger One Hundred Fund, Denver: Linafelter too is more cautious after his fund’s rise of 22.6% for the quarter and 62% for the year. His $78-million fund is 16% in cash.
Linafelter simply hunts for companies whose earnings are growing rapidly, and he says most of his bets have paid off this year--such as computer graphics firm Scitex Corp. and retailer 50-Off Stores. He still likes those firms too much to dump them, yet admits that “there are fewer and fewer” ideas out there that haven’t been recognized.
* Phil Dubuque, Financial Portfolio Financial Services Fund, Denver: He made a large commitment to bank stocks last spring, just before they surged on expectations of a merger wave. That helped his fund gain 24.8% for the quarter. Lately, Dubuque has cut back on banks, but he still sees bargains in such life insurers as Broad Inc. and in fast-growing mortgage and credit firms such as Countrywide Credit.
Overall, many of the top fund managers aren’t bearish--just realistic. Most still see a long-term bull market under way in small stocks, though they believe that a temporary selloff is long overdue.
Stock Mutual Fund Performance
Total returns: price change plus reinvested income and capital gains.
QUARTER ENDED SEPT. 30
Top Performers
Oppenheimer Global Biotech 44.39% Hartwell Emerging Growth 27.00 Shearson Small Cap 26.25 Mainstay: Cap Appreciation 26.10 Financial Funds: Fin. Services 24.78 CGM Capital Development 24.56 Financial Funds: Technology 23.51 Montgomery Small Cap 23.08 Fidelity Select Biotech 22.68 Berger One Hundred 22.58 Average general stock fund 7.31 S&P; 500 index 5.26
Worst Performers
Strategic Investments -20.47% United Services Gold -15.41 Strategic Silver -15.11 Financial Funds: Gold -12.06 Rushmore Precious Metals -11.92 Benham Gold Index -11.70 Monitrend Gold -11.66 SunAmerica Precious Metals -11.46 Fidelity Select American Gold -10.67 Enterprise Precious Metals -9.90
NINE MONTHS ENDED SEPT. 30
Top Performers
Oppenheimer Global Biotech 92.01% CGM Capital Development 75.26 Montgomery Small Cap 74.28 American Heritage Fund 72.22 Financial Funds: Fin. Services 67.06 Prudent Speculator 66.22 Fidelity Select Biotech 65.92 Oberweis Emerging Growth 63.83 Berger One Hundred 62.01 Financial Funds: Health Sci 59.11 Average general stock fund 24.89 S&P; 500 index 20.25
Worst Performers
Rushmore Precious Metals -20.68% Strategic Investments -16.87 Benham Gold Index -16.04 Strategic Gold/Minerals -12.77 Financial Funds: Gold -12.64 Fidelity Select Energy Services -11.49 Fidelity Select American Gold -10.97 Shearson: Precious Metals -10.06 SunAmerica Precious Metals -9.96 Thomson Precious Metals -9.36
TEN YEARS ENDED SEPT. 30
Top Performers
Fidelity Select Health 967.94% CGM Capital Development 814.74 Fidelity Magellan 769.04 Merrill Lynch Pacific A 615.06 Phoenix Growth 569.90 Fidelity Destiny I 565.89 AIM Funds: Weingarten Equity 563.34 FPA Funds: Paramount 560.15 TNE Funds: Growth 549.94 IDS New Dimensions 514.62 Average general stock fund 306.37 S&P; 500 index 397.90
Worst Performers
44 Wall Street -72.96% Steadman Oceanographic -56.55 Strategic Investments -50.62 Steadman American Industry -47.45 American Heritage Fund -34.75 United Services Gold -7.13 Sherman Dean Fund -7.01 Steadman Investment 4.21 Bull & Bear Gold 4.93 44 Wall Street Equity 20.07
GROUP PERFORMANCE FOR PERIODS ENDED SEPT. 30
Fund Category (No. of Funds) Quarter 9 Mos. Ten Years Health/Biotech (9) +17.67% +49.49% +967.94% Financial Services (11) +11.93 +45.51 +329.51 Small Company (100) +10.70 +36.80 +248.21 Science & Technology (21) +9.80 +28.18 +270.35 European Region (24) +9.17 +4.41 NA Utility (23) +8.65 +13.51 +288.36 Capital Appreciation (136) +8.16 +27.01 +286.53 Growth (291) +7.25 +24.67 +308.15 Global (53) +7.07 +15.08 +351.05 Equity Income (73) +6.35 +19.11 +316.02 International (82) +6.28 +10.71 +307.12 Growth and Income (233) +5.70 +20.43 +325.23 Specialty/Miscellaneous (29) +4.98 +23.89 +168.18 Option Income (5) +4.14 +16.48 +209.82 Natural Resources (21) +3.77 +6.78 +146.38 Environmental (6) +3.08 +11.17 NA Real Estate (6) +1.78 +23.54 NA Pacific Region (24) +1.48 +13.33 +475.55 Gold Oriented (36) -7.58 -6.66 +32.80 Average general stock fund +7.31 +24.89 +306.37 S&P; 500 index +5.26 +20.25 +397.90
Source: Lipper Analytical Services
Stock Funds Pour It On The average stock mutual fund is rising faster than the benchmark stock market index, the Standard & Poor’s 500 index. That’s because many of the smaller stocks owned by the funds are soaring faster than the blue-chip stocks in the S&P; 500-for the first time since 1983. Fullthird-quarter fund performance report, D2. Big Gains in Third Quarter. . . Percent gain Small-company: 10.70% Average Stock Fund: 7.31 Growth: 7.25 International: 6.28 Growth & income: 5.70 S&P; 500: 5.26 . . .And for the Nine Months Percent gain Small-company: 36.80 Average Stock Fund: 24.89 Growth: 24.67 International: 10.71 Growth & income: 20.43 S&P; 500: 20.25 Source: Lipper Analytical Services Inc.
