MUTUAL FUNDS / RUSS WILES : Why Some Managers Favor the Long-Term View

Managerial consistency is one of those key qualities investors look for in mutual funds. Shareholders want assurances that the people they’ve entrusted with their money have had experience dealing with both up and down markets. And they want to know that the professionals who built a fund’s performance record are still at the helm.

The Boston-based State Street Investment Trust makes a good case study for why managerial consistency counts. The $800-million portfolio is the nation’s second-oldest mutual fund, having started in 1924. Yet it has had only three managers over that 69-year span--and all three are still alive.

Paul Cabot, now 94, co-founded the fund and guided it through the traumas of October, 1929, the Depression and World War II. George Bennett, now 80, took over in 1953 and held the reins for 35 years. He in turn was succeeded by his son Peter Bennett, 54.

With an eye on buying well-run, quality growth stocks, the three managers have together achieved a 12.8% annual compound total return, about two percentage points a year better than the Standard & Poor’s 500. Expressed another way, a net $10,000 (after-commission) investment, if left untouched from the fund’s inception date, would have swelled to $39.5 million as of March 31, 1993.

“I still have a strong conviction that the place to invest is common stocks,” says the elder Bennett. “They have outperformed fixed-income investments time and again over periods of five to 10 years and longer.”

This isn’t to say that he’s always bullish. At the moment, for instance, he figures the market is overpriced, given the level of corporate earnings and the political rhetoric coming out of Washington. “No economy has ever prospered with an increase in taxes,” he says.

But the elder Bennett also disdains market timing and emphasizes the need to take a long-term view with stocks and stock funds. Son Peter follows a similar philosophy. “There is a certain wisdom to investing in good companies, remaining patient and holding for the long term,” he says.

As a case in point, Peter hasn’t abandoned the growth style of investing, even though earnings-driven companies have been out of favor on Wall Street since late 1991.

“Over time, the biggest returns have been on companies that have seen their earnings grow over an extended period,” he says, referring to profit powerhouses such as Wal-Mart, Home Depot and Merck. “If you can get the earnings right, that’s about all you need to know.”

The fund’s largest holdings these days include AT&T;, Abbott Labs, Toys R Us and Hewlett-Packard. AT&T; is a focal player in the telecommunications revolution--one of Peter Bennett’s favorite themes for the 1990s.

His buy-and-hold approach is reflected in the fund’s low 0.5% expense ratio and listless 16% turnover rate.

Morningstar, the Chicago-based rating service, gives State Street Investment Trust a “neutral” three-star ranking (on a scale of five). Morningstar pegs its ratings primarily to 10-year performance, and the State Street fund did lag the benchmark S&P; 500 in six of the last 10 calendar years.

On the other hand, it held up better than average in 1987 and 1990, two of the toughest years of the last decade.

In George Bennett’s view, the biggest changes in the mutual fund business have been the aggressive marketing of funds and the explosion in the number and types of portfolios.

He figures the much-maligned 12b-1 fee--named for the Securities Exchange Commission rule that authorizes funds to recoup some marketing costs from investors--has been a good thing in that it has made equity funds more available to the public by encouraging brokers to sell them.

Ironically, State Street Investment Trust (800-882-3302; 4.5% maximum sales load) was late to join the marketing game. The fund was closed to new shareholders from 1943 to 1989.

The decision to restrict new shareholders was motivated by a desire to improve investment results by keeping the portfolio of a manageable size at a time when the market traded only about a million shares a day.

“In retrospect, maybe we shouldn’t have closed,” says George Bennett. While the economy, stock market and financial world in general have become much bigger and more complicated in recent decades, Cabot and George Bennett say they would follow the same investing basics that served them so well in the past.

“Use common sense and stick to the fundamental values,” Cabot advises investors today.

“I would use the same judgmental standards for buying stocks as I did back then.”