Solid Little American Growth Ready for Change

Mutual fund managers who build a solid track record can usually expect to attract a steady flow of investors. Robert Brody is living proof that it doesn’t happen all the time, however.

Brody has compiled a pretty good performance history as head of the American Growth Fund, but his Denver-based portfolio counts just $74 million in assets--an amount some funds pull in within months. Yet Brody has been at the job 35 years.

In fact, only three active managers have more continuous experience running a particular fund than the 68-year-old Brody. Lengthy tenure is much more the exception than the rule in a business in which most managers have been at their jobs since only the late 1980s.

Brody and American Growth are unusual in other ways, too.

For starters, he has $1.8 million of his own money invested in the fund, a relatively high personal stake. In addition, he has made no effort to open sibling portfolios--another rarity in an age dominated by fund families. In fact, Brody does very little outside money management for institutions and wealthy individuals--a further sign of going against the grain.

“I feel we do a better job by concentrating all our efforts in one fund,” he says.

So with such dedication, why is the fund still comparatively small and little known?

For part of the answer, you need only look back to the period from 1983 through 1991. Although American Growth posted positive returns in seven of the nine years, it also lagged rival growth funds in eight of those years.

Second and perhaps more important, Brody and his staff haven’t succeeded in getting the word out during an era when aggressive self-promotion is a big part of the mutual fund game.

“We haven’t done an outstanding job marketing it, which is obvious,” he says.

But now he’s determined to change all that. And with American Growth coming off two very good years in 1992 and ‘93--when it outperformed 75% of its peers--Brody has a lot more to boast about. The fund’s long-term record is also quite decent. American Growth achieved an 11.1% annual compounded return from January, 1960, to January, 1994, according to the Summit, N.J. office ofLipper Analytical Services.

That was significantly better than the 9.8% yearly gain for growth funds in general, according to Lipper, whose numbers don’t go quite as far back as American Growth does.

Someone who paid the maximum original sales commission of 5% would have earned about 10.9% annually rather than 11.1%. The top load was later boosted to 8.5% but since then has been lowered to 5.75%.

Brody is a so-called top-down manager, which means he starts with a macroeconomic outlook, then identifies attractive industries and, after that, individual stocks likely to fare well assuming his forecast is on target.

And with the economy gradually strengthening, cyclical stocks are the ones he believes will show the greatest earnings growth. A company’s profit potential is “five times more important than any other factor” in predicting stock price performance, he says.

Looking ahead, Brody says he’s bullish about the stock market generally and cyclical companies in particular.

Favorite firms include those in banking, auto making and steel manufacturing.

“There’s a pent-up demand for cars, and sales will rise,” he says, explaining why he has placed a combined 11.3% of the portfolio in shares of General Motors and Ford.

As for bank stocks, they’re selling well below the market’s price-to-earnings multiple, he points out, while years of restructuring have made steelmakers “lean and mean.”

Bethlehem Steel is the fund’s second-largest holding, behind GM, at 5.7% of assets.

When Brody started out, there were fewer than 100 mutual funds around, and a 3-million-share trading day on the New York Stock Exchange was considered average.

Now the number of funds is closer to 5,000, and daily NYSE volume often exceeds 300 million shares.

In these heady days, Brody thinks managers such as himself who retain the ability to move significantly into cash during rough periods enjoy an edge.

“Something that new investors should be aware of is that markets can and do move in two directions,” he says, cautioning that first-time fund shareholders shouldn’t forget about the risks they’re assuming.

That caveat aside, Brody also considers it important for people to invest steadily over time, in both up and down markets, to meet their long-term goals.

*

Men dominate the boards of directors at mutual funds, holding 94% of the seats, even though women represent nearly half of all shareholders, says a study by Fund Directions, a New York-based industry newsletter.

And, at a median age of 63, the typical fund director is about 17 years older than the average shareholder, the study found.

The survey of 340 trustees and directors at 50 mutual funds also found that 72% of the members were independent outsiders, which Fund Directions viewed as evidence that boards aren’t as cozy with management as critics allege.

Retired business executives, lawyers and academics also tended to be heavily represented.

*

The price of gold bullion has slipped just 2.8% so far this year--from $390.80 on Jan. 1 to $380 now--but some gold-mining stock funds have suffered far worse.

Last week saw heavy profit-taking in many of the gold funds, after the Federal Reserve tightened credit for the first time since 1989.

The Fed’s move was aimed at quashing inflation before it becomes a problem in an expanding economy.

That apparently disappointed some gold stock investors, who may have been betting on a pickup in inflation to boost gold further this year.

Last week’s big losers among the gold funds included Lexington Strategic Investments, which plunged nearly 9% through Thursday, according to fund-tracker Lipper Analytical Services in New York. Year-to-date, Lexington is down almost 20%.

But Lexington shareholders are used to wild volatility: The fund was the biggest gainer among all stock funds last year, rocketing 270%, Lipper notes.

Also falling sharply last week was U.S. Gold Shares, down nearly 8% for the week ended Thursday.

The fund now is off almost 16% so far this year, after surging 124% last year.

The average gold stock fund dropped 5.2% last week through Thursday.

Year-to-date, the average gold fund’s loss is just under 3%--about in line with the decline in bullion prices so far.

Deans of the Fund Business

Listed below are the five mutual fund managers with the longest track records, according to information compiled by Morningstar Inc. of Chicago. The table includes the year in which these managers started at their respective funds.

Manager Fund Type Year started John Robinson General Securities Asset allocation 1951 John Van Eck Van Eck Intl. Precious Metals 1956 Charles B. Johnson Franklin Income Income 1956 Franklin Utilities Utilities 1957 Robert Brody American Growth Growth 1957 Ernest E. Monrad Northeast Trust Corporate Bond 1960