Poor-Performing Fund May Be Good Buy : Investments: Conventional wisdom says don’t do it, but a respected industry expert says at least consider it.

For years, you’ve been reading advice telling you not to buy the mutual funds at the top of last year’s performance rankings. Now a respected mutual fund industry spokesman says you should consider buying some of the funds at the bottom of those lists.

Jon Fossel, chairman of the Oppenheimer family of mutual funds, recently urged investors to buy the worst-performing funds in their favorite fund families. He figures that a good mutual fund family’s worst performer is probably run by a pro whose investment strategy is temporarily out of style; thus, the fund probably holds a bunch of good stocks that have been poor performers.

When styles change, those holdings will rebound sharply and the fund will pull ahead of the pack.

Fossel calculated that Oppenheimer shareholders who followed that strategy from 1988 through 1993 would have turned $10,000 into $25,000, versus only $20,400 for the average Oppenheimer fund during that period.

That evidence is interesting, but not conclusive. Some fund families’ worst funds in a given year will continue to be dogs for another year--or even longer. Some of them are simply bad funds.

Still, Fossel’s larger point is compelling: One of the best ways to make money in funds is to buy terrific funds when they are temporarily in the doldrums. There are plenty of opportunities to do so.

Even the best managers have bad years. John Neff of the Vanguard Windsor Fund and Michael Price of Mutual Shares are two of the most successful money managers of the past several decades. But both struggled through a couple of years of sub-par performance during the recent bull market. During the past year, both managers have handily outperformed their peers.

Any opportunities out there now? Absolutely. To find them, I reviewed funds with solid long-term records (all of them earned four- or five-star rankings for their five-year risk-adjusted performance from Morningstar, the Chicago mutual-fund rating firm). Among those funds, I looked at the ones that have delivered the worst performance over the past 12 months. They include the three diversified no-load funds that I describe below. All of them are worth consideration for long-term investors:

* Evergreen Total Return ((800) 235-0064; $2,000 minimum purchase): This conservatively managed fund has posted a 0.32% loss during the past 12 months. Veteran manager Nola Falcone relies heavily on stocks with high yields to boost investors’ income and cushion the fund from losses in more aggressive stocks. That strategy backfired when interest rates rose in 1993’s fourth quarter, pummeling income-oriented investments ranging from bonds to high-dividend stocks. But over the past three years, the fund has delivered solid returns of 11.2% annually at less than half the risk of a typical equity fund.

* FAM Value ((800) 932-3271; $2,000). This fund was closed to new investors until March 23. Now that its doors have opened wide once again, some investors may be reluctant to invest their money with managers Thomas Putnam and Diane Van Buren, who delivered a mere 0.24% return during the past year. But they’re missing an opportunity for future gains. The fund, which invests in shares of out-of-favor companies, has delivered 13.3% annual gains over the past five years, at considerably less risk than the typical equity fund.

* Royce Equity Income ((800) 221-4268; $2,000). This fund invests in shares of small companies, which tend to be relatively volatile. But fund managers Tom Ebright and Chuck Royce take a conservative approach, choosing shares of undiscovered companies or firms that are experiencing temporary troubles. In other words, they buy small company stocks when they are extremely cheap. The managers also look for shares that provide above-average dividend yields. The result: The fund’s shares have climbed 15.7% annually during the past three years; meanwhile, the fund has been far less volatile than the typical stock fund. With only $93 million in assets under management, Royce Equity Income is an overlooked gem.