New Offerings With Some Interesting Twists
New mutual funds continue to pop up like wildflowers after this year’s heavy rains.
That’s not surprising when you consider that the stock and bond markets produced torrentially good returns in 1991. What is surprising is that some of these funds actually feature new investment twists and wrinkles.
That’s saying something, because it’s not easy to be different when you’re following in the path of 3,700 other stock, bond and money market funds.
Several of the new products are globally oriented, and many are from California-based fund companies.
One innovator is tiny Montgomery Asset Management in San Francisco. Montgomery’s first portfolio, a small-stock fund, surged 98.8% last year. Buoyed by that success, the firm in March unveiled its second fund, which invests in “emerging markets” in Asia, Latin America, Eastern Europe and other places off the beaten capitalist path.
The Montgomery portfolio isn’t the only fund that avoids Japan, Britain, Germany and other big foreign markets, but it claims to be the first no-load of the group--and one of only a handful overall. The $16-million fund (no load; 800-428-1871) has its largest holdings in Mexico, Malaysia, Singapore and Thailand, says Bryan Sudweeks, a portfolio manager.
Another new emerging-markets fund was launched in January by San Francisco-based Govett Financial Services, itself a new fund group. (The company is affiliated with John Govett & Co., a $5-billion London money-management outfit.)
At the same time it launched the emerging-markets fund (4.95% load; 800-634-6838), Govett Financial also came out with three other globally oriented funds, including a health care portfolio.
Global health care funds are in vogue because the first such product, Oppenheimer Global Bio-Tech, catapulted 121.1% in 1991, making it the No. 1 fund for the year.
Besides Govett, three other companies have recently unveiled global health care portfolios. They include the giant Franklin Group in San Mateo and GT Capital Management of San Francisco.
The funds are banking on continued growth in the health care industry. But during the first quarter of 1992, they lost 6.4% on average. “It’s typical for investment companies to come out with new mutual funds in an area after it’s been hot for a while,” says H. Price Headley III, research manager at Fund Profit Alert, a Cincinnati investment newsletter.
“We’re skeptical of global health care over the near term,” says Headley, a contrarian investor who currently prefers cyclical industries such as auto making, energy services and entertainment/leisure.
Another global-equity portfolio with a different twist is Papp America-Abroad Fund (no load; 602-956-0980 collect), from L. Roy Papp & Associates in Phoenix. This fund hopes to capitalize on international economic growth while subjecting shareholders to minimal currency risk. It does this by investing in American stocks with substantial international operations as well as foreign companies whose shares trade on U.S. exchanges.
On the bond side, Benham Capital Management of Mountain View, Calif., in late January introduced what it says is the first diversified European government bond fund. Nearly 100 funds invest in foreign bonds--including many that stick with government-issued debt--but the others either concentrate on a single country or spread their holdings into Japan, Australia, the United States or elsewhere.
Is a Europe-only bond fund such a good idea? Because of the currency risk, the Benham product will generally be more volatile than an exclusively U.S. portfolio. But foreign bonds can also add diversification for a U.S. investor. A mix of 20% foreign and 80% American has historically produced higher returns with less volatility than U.S. bonds alone, says Benham.
Benham’s European Government Bond Fund (no load; 800-472-3389) is designed to complement, not replace, what an investor might already hold in U.S. bonds.
In addition to funds with new twists, a couple of notable money managers are introducing their first mutual funds, or thinking about doing so.
One is William O’Neil & Co., a West Los Angeles stock-research company that is affiliated with Investor’s Business Daily newspaper. The New USA Fund will invest in companies showing accelerating earnings and stock-market strength. It will hold a large proportion of smaller and medium-sized companies--the type of firms that are creating most of the new jobs and wealth in this country, says David Ryan, a portfolio manager. The fund (5% load; 800-241-5779) begins trading May 1.
Also, Provident Investment Counsel, a $7-billion pension manager based in Pasadena, is planning to come out with a growth-stock portfolio and a balanced portfolio, according to Fund Action, a New York trade newsletter. Provident already helps manage the Enterprise Capital Appreciation Portfolio (4.75%; 800-432-4320) and will continue to do so. That fund has earned a top five-star rating from Morningstar Mutual Funds, a Chicago-based publication.
A Provident spokesman declined comment on the new portfolios, but Fund Action says they will be available on a no-load basis.
Buying New Funds Is it a good idea to purchase a brand new mutual fund? Generally not. You can usually find a substitute that’s already up and running, with an established track record and proven investment manager.
One problem with new funds--assuming they stay small for a while--is that they don’t enjoy many economies of scale. The resulting high per-share expenses can drag down the investment returns.
If you invest in a relatively new fund, at least go with one that is showing a steady increase in assets.
An argument in favor of buying new funds is that some managers post their best gains while the portfolio is small and more easily maneuvered. On the other hand, if the manager is as good as advertised and the approach sound, investors should be able to expect reasonably consistent performance for years.
Above all, don’t feel you must rush into a mutual fund out of fear it might close its doors to new investors. This doesn’t happen often and rarely is permanent. Take the time to track a fund and make sure you can live with its ups and downs.
