Some Low-Risk-Oriented Portfolios Can Be High Fliers

This is an investment story for people inclined to root for the tortoise rather than the hare.

The moral is that while flashy, fast-moving mutual funds often post big gains, slow-and-steady portfolios can also win races.

Consider what’s been happening lately with the Lindner Dividend Fund.

This smooth performer beat 99% of all stock-oriented funds in the first half of this year despite taking lower risks than most. Those results don’t appear to be a fluke in light of the portfolio’s solid long-term gains.

Lipper Analytical Services, a performance-monitoring firm, classifies Lindner Dividend as an “equity-income” fund, a type of portfolio that invests in low-volatility stocks paying relatively generous dividends.

As a group, the equity-income funds have done well, considering their low-risk orientation.

For example, the funds rose 323% (15.5% annually) over the 10 years ending June 30, according to Lipper. That compares with 320% (15.4% a year) for all stock funds.

Other top-notch products in this category include Financial Industrial Income (no load; 800-525-8085), United Income (8.5% load; 800-366-5465) and the USAA Mutual Income Stock Fund (no load; 800-531-8181).

The first two funds have the best 10-year records in the equity-income group.

But Lindner Dividend (314-727-5305) is less volatile than its rivals and appears to have a leg up on the competition at the moment. During the first six months of 1992, it rose 11.3%, versus 1.9% for the average equity-income product.

Based on its high bond weighting, Lindner Dividend probably should be classified as a “balanced” portfolio. But even in this category, the fund would rate among the three or four best.

In the 1970s, Lindner Dividend had as much as 90% of its assets in high-yielding, undervalued common stocks. But that proportion has been whittled down to about 15%.

“High-yielding common stocks have always been our priority, but they hardly exist anymore,” says Eric E. Ryback, the fund’s portfolio manager.

The 40-year-old Ryback, a former bank trust officer in Michigan, was hired over the phone by founder Kurt J. Lindner after having requested information on the latter’s stock-picking approach.

Ryback joined the company in 1982 and has been running the dividend fund by himself since 1984, when it had just $1 million in assets.

In addition to the 15% weighting in common stocks--comprised mostly of utility shares--the fund has 50% of its assets in preferred stocks, 30% in corporate bonds and 5% in Treasury bills.

Ryback positioned the fund a couple years ago to capitalize on the lower interest rates he figured were inevitable. He predicts that rates will stay low for several years, based on the economy’s sluggishness and lack of inflation.

Despite its enviable long-term record, Lindner Dividend isn’t a particularly large fund. Although assets have shot up to $425 million from $235 million at the start of the year, the fund remains much smaller than, say, Financial Industrial Income ($2.2 billion) or United Income ($2.3 billion).

No doubt this reflects the fact that Lindner management doesn’t go out of its way to woo investors.

“We don’t do any advertising, we don’t have an 800 number and we’re only registered in 28 states (including California),” explains Ryback, adding that some marketing-friendly changes might be coming.

And while Lindner Dividend and its larger sibling, the $996-million Lindner Fund, are no-loads, the company imposes a 2% redemption fee on withdrawals made within 60 days.

Perhaps most important, the unusual Lindner group doesn’t offer anything other than these two funds to choose from--there’s not even a money market portfolio available.

But given the low-risk approach followed by both funds, lack of a money-market haven isn’t a serious shortcoming, says Ken Gregory, co-editor of the L/G No-Load Fund Analyst, a San Francisco investment newsletter.

“Having a money market fund to switch into can be bad if it encourages people to try to time their moves or seek a quick out,” says Gregory, who recommends Lindner Dividend for conservative equity investors.

Another fan is Walter Rouleau, editor of the Growth Fund Guide newsletter in Rapid City, S.D. The two Lindner portfolios are among only six lower-risk funds he’s recommending.

“I think it’s appropriate for both aggressive and conservative people to buy these types of funds,” says Rouleau, pointing out that investments such as Lindner Dividend will rise in bull markets without exposing shareholders to debilitating losses.