MARKET MILESTONES : Mutual Funds’ 35.6% Gain Biggest Since ’67

Stock mutual funds in 1991 posted their biggest one-year gain since 1967, with the average fund soaring 35.6%, Lipper Analytical Services reported Friday.

The surge was powered by funds that concentrate on smaller stocks. They rocketed 51.6% for the year, according to the New York-based fund tracker.

For a second straight year, a handful of funds that target health care and biotechnology stocks led all categories, rocketing 74.3% on average. Those funds had risen 19.4% in 1990.

The average general fund gain of 35.6%, the best since a 36.8% rise in 1967, also marked the first full year since 1982 that the funds beat the stock market benchmark, the Standard & Poor’s 500 index. That index rose 30.4% for the year, including dividends earned.

Mutual fund managers’ ability to outpace the blue chip S&P; index was mostly a result of small stocks’ stellar comeback after a steep slide in 1990. Small stocks, generally those listed on the NASDAQ market, are owned by many funds in the “growth,” “capital appreciation” and “small-company” categories.

With the stock market at a record level, most experts are cautioning that fund investors have little chance of seeing gains in 1992 to rival those of 1991.

“I hope people don’t get carried away by those (1991) numbers,” said Michael Lipper, head of Lipper Analytical. Compounded over the past 30 years, stock funds’ average annual gain is just under 10%, he said--which means that the 1991 gain was 3 1/2 times the normal return, an unsustainable pace.

Still, Lipper conceded, the stock market’s 1991 advance, and the continuing huge flow of investor dollars into mutual funds, was reminiscent of the 1962-68 period--which became known as the “go-go” years for stock funds.

Many of the factors that powered the stock market, and stock funds, to unexpected heights in that era are present today, Lipper noted. They include low inflation, low interest rates, the entry of many new investors into the market and a vibrant market for new stock issues by young companies seeking to raise capital.

Separately, the Securities and Exchange Commission voted Friday to ensure that all mutual fund investors receive proxy material and information about upcoming stockholder meetings. Banks and brokerages often hold mutual fund shares on behalf of investors.

The new guidelines will ensure that firms forward proxies to the actual owners of the shares, although most banks and brokerages already do so.

Monday: A report on the top individual funds of 1991.

A Banner Year

Stock mutual funds in 1991 posted their largest one-year gains since 1967. A look at how major fund categories fared last year and over a 10-year period:

Fund category Average total return (number of funds) 4th Qtr. Year 10 years Health/biotech (10) +16.4% +74.3% +1,021.2% Small company (114) +10.3% +51.6% +257.1% Capital appreciation (135) +9.0% +38.8% +300.2% Growth (299) +8.8% +36.0% +315.2% Growth and income (248) +7.2% +28.9% +321.9% Utilities (26) +1.6% +21.4% +357.1% International (88) +1.6% +12.3% +278.8% Average general stock fund (867) +8.3% +35.6% +309.8% S&P; 500 stock index +8.4% +30.4% +406.0%

Source: Lipper Analytical Services Inc.