Investment Club Group Expands Its Horizon
The mutual fund onslaught appears to have breached that final bastion of individual stock picking, the National Assn. of Investors Corp.
For more than 40 years, this umbrella group for investment clubs has preached a simple gospel: The path to financial success lies in selecting quality growth stocks selling at reasonable valuations. The approach has been a popular one, as evidenced by the NAIC’s steady expansion to where it now encompasses 270,000 members in 13,000 clubs.
So it was something of a milestone when the organization in January unveiled its first work sheet for comparing stock mutual funds. The one-page form is a handy way for investors to compile information on a fund’s performance, management, riskiness, expenses, portfolio holdings and more.
The NAIC also promises a bit more mutual fund coverage in its monthly magazine, Better Investing.
“Our emphasis still is solidly on individual stocks,” said Thomas O’Hara, chairman of the Madison Heights, Mich., organization.
“But the fact of the matter is that our members also buy mutual funds.”
In fact, NAIC surveys indicate that, on average, members have about 40% of their personal portfolios in mutual funds, excluding club holdings. The average NAIC participant has investments worth about $200,000, O’Hara says. Of that, less than $8,000 represents a member’s stake in his or her club’s account.
A typical club might own shares in two dozen different stocks, providing adequate diversification for the type of blue-chip growth companies that the NAIC favors.
But for a well-balanced portfolio, investors likely would want to gain exposure to smaller domestic stocks, foreign markets and bond investments, and perhaps even add a modest amount in an inflation hedge such as gold. That is, they could want to diversify not just by adding more stocks but by adding different types of assets.
Mutual funds can fill those gaps by providing well-diversified access to foreign markets, small stocks and other arenas for people with only a few thousand dollars to invest.
In addition, fund managers have access to better research in esoteric areas such as foreign markets, and they can usually buy and sell shares for much less than individuals can. Many NAIC investors build positions in larger U.S. companies through low-cost dividend-reinvestment plans, but smaller firms and foreign corporations are less likely to offer such programs.
Kathleen Corum, president of the NAIC council in Phoenix, says she has purchased shares in several international and small-company funds over the past year or so to complement her portfolio of large domestic stocks.
“Both are areas I wouldn’t target for my individual holdings,” she said.
Betty Sinnock, member of a well-known women’s investment club in Beardstown, Ill., says she owns the Warburg Pincus International Equity Fund, which also happens to be one of Corum’s choices.
But Don Shorkey, president of the NAIC council in Los Angeles, owns no mutual funds and has no plan to do so.
“An investment club is a mutual fund unto itself,” he said. “We buy and sell our own stocks, so why should we pay somebody else to do it?”
The NAIC’s acknowledgment of mutual funds, however limited, hasn’t been met with universal enthusiasm among the membership.
“A fair number of people in the NAIC are vehemently opposed to mutual funds, and I’ve heard that some people are unhappy that the NAIC devoted an issue (of Better Investing) to the topic,” Corum said.
But newer club members are more likely to have fund holdings, she adds. For what it’s worth, the rival American Assn. of Individual Investors has long embraced mutual funds and, in fact, provides detailed coverage in both print and electronic form.
“For most individuals, using both stocks and mutual funds makes a lot of sense,” said John Markese, president of the Chicago organization.
“How much you lean toward funds depends on your investment talent, time and knowledge.”
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Robert Rodriguez, who runs the FPA Capital and FPA New Income funds in Los Angeles, has been named portfolio manager of the year by Morningstar Inc. of Chicago. During a tough climate in the financial markets, Rodriguez’s stock fund, FPA Capital, gained 10.4% in 1994, while his bond portfolio, FPA New Income, returned 1.5%.
Hakan Castegren, who manages the Harbor International and Ivy International funds, was Morningstar’s runner-up.
Next up came George Vanderheiden, who runs Fidelity’s Destiny I and II portfolios, as well as Fidelity Advisor Growth Opportunities.
Morningstar also cited the managers of the Sequoia Fund, a New York portfolio that has been closed to new investors for nearly a decade.
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Many fund investors are taking the wrong focus with a day-to-day trading mentality instead of a long-term approach, according to a survey released by brokerage Smith Barney last month.
Some 30% of the mutual fund investors surveyed agreed with the statement, “To make money in mutual funds, it is important to time the market correctly, that is, wait for the market to hit bottom to buy and wait for the market to go up to sell.”
The survey of 202 investors with household incomes above $50,000 indicated that 14% follow their funds’ performance daily and another 23% watch it weekly. The survey had a confidence level of plus or minus 7%.
