Special Report on Investments and Personal Finance : Help in Picking Out the Hardiest Performers : In the Crowded Field of Mutual Funds, Standouts Win With Steady Growth

By RUSS WILES

April 2, 1995 12 AM PT

SPECIAL TO THE TIMES

If variety is the spice of life, the mutual funds patch is an overgrown herb garden. A bewildering assortment of about 6,000 funds now vie for the attention of investors. Promising new variants seem to spring forth from under every rock.

To maintain simple order in your financial back yard, you might have to do some serious pruning.

You can start by weeding out unpredictable funds that make heavy use of derivatives and other esoteric strategies. Next, step around those portfolios whose performance was built by a manager no longer at the helm. Then cut down funds with high expenses or excessive risk and those holding big stakes in just one or two industries.

Following these steps trims the attractive stock mutual funds to a manageable number. (Bond, money-market and hybrid funds also play important if subordinate roles in a balanced portfolio, but we have excluded them from this discussion for the sake of simplicity.)

And from that select crop we’ve gleaned a handful of the hardiest, most dependable perennials--funds that seem to thrive in most any kind of financial weather.

Mutual Beacon

This fund offers stock market exposure from behind a wind screen. It’s among the least risky portfolios on our list.

Mutual Beacon commits about 70% of its assets to stocks, but mostly not in companies likely to bite you. Manager Michael Price favors firms with strong balance sheets selling at cheap valuations, but he’s not afraid to invest in companies in reorganization, bankruptcy, divestiture or other types of transition.

Considering the fund’s contrarian leanings, it’s auspicious that management hasn’t retreated to a thicker cash cushion.

“Every day, we’re finding things to buy,” says Larry Sondike, vice president. Even with the broad market trading near record highs, he said, “a lot of individual companies have been beaten down materially.”

Like most other funds on our list, Mutual Beacon has had the same manager for years, runs a fairly low-cost operation and treads a close-cropped investment path. Although the Short Hills, N.J., portfolio isn’t risk-free--having lost 8.2% in 1990--a conservative slant reduces the chance of numbing losses.

Other low-volatility stock products include the Merger Fund ((800) 343-8959), T. Rowe Price Capital Appreciation ((800) 638-5660) and Gateway Index Plus ((800) 354-6339). All three are sold without a “load” or sales fee.

Washington Mutual Investors

This California giant shows the consistently good results that can come from investing in large-capitalization stocks--companies worth more than $5 billion each.

Many prominent domestic stock funds have been loading up on volatile technology plays lately, warns Don Phillips, publisher of Morningstar Mutual Funds of Chicago. But Washington Mutual has avoided making big bets on trendy firms or industries. As of Jan. 31, it held stakes in 26 industries, with little in technology.

Much of the fund’s consistent success can be attributed to the fact that eight people oversee separate slices of the $13.2-billion portfolio, part of the American Funds Group of Los Angeles. The managers’ value orientation also helps to dampen volatility.

Washington Mutual is sold through brokers at a maximum sales charge of 5.75%. Commission-shy investors may prefer the no-load Dodge & Cox Stock Fund ((800) 621-3979).

It too features multiple managers, buys value stocks, tends to stay fully invested and trades infrequently. Its results in recent years have been just as good as Washington Mutual’s.

In contrast to these two value stalwarts, Fidelity Advisor Growth Opportunities (4.75% load, (800) 522-7297) and Harbor Capital Appreciation (no load, (800) 422-1050) buy big stocks with greater growth potential. And no review of large-stock funds would be complete without the Vanguard Index Trust 500 Portfolio (no load, (800) 662-7447), which has bested most rivals merely by holding the same companies named in the Standard & Poor’s 500 market index. The fund’s low costs and plain-vanilla approach help to explain its success.

Longleaf Partners

Drop down a notch to medium-sized companies, and you would be hard pressed to find a fund with better recent performance than this one.

The Memphis, Tenn., fund used to be called Southeastern Asset Management Value Trust, but management changed the moniker because too many people mistakenly assumed it bought regional stocks only.

A rose by any other name, this fund has trounced its competition over the past four years by seeking out companies selling at low prices relative to their liquidation values, cash flow and the like. Typical holdings are “mid-cap” stocks worth about $3 billion each.

The fund’s managers live by the credo of finding “unrecognized intrinsic value.” They also believe in focusing their bets.

“I don’t understand the logic behind owning 100 companies when you can concentrate your capital in, say, 20 favorite choices,” lead manager O. Mason Hawkins recently told the Value Line Mutual Fund Advisor.

The fund’s $10,000 minimum will discourage some investors, but there are other good mid-cap choices. Some of them are Crabbe Huson Equity (no load, (800) 541-9732), Gabelli Value (5.5% load, (800) 422-3554) and Oakmark (no load, (800) 625-6275).

Fidelity Blue-Chip Stock (3% load, (800) 544-8888) and Fidelity Value (no load) also are worth watching, although both have recently had management changes.

Twentieth Century Giftrust

This portfolio grows as fast as anything in the mutual funds garden. Though highly volatile, Giftrust has rewarded shareholders with the industry’s top performance over the last decade.

By chance, 10 years is the minimum period that an investor must remain in this unusual product.

“We force people to become smart investors,” says Twentieth Century spokesman Gunnar Hughes, referring to the sagacity of buying and holding for the long haul.

Unfortunately, Giftrust is one of the few mutual funds you can’t buy into for yourself. A purchase must constitute an irrevocable gift to a child, another relative, a friend, charity, favorite college or whatever. This explains why the fund counts only $330 million in assets despite a superlative record.

As a donor, you do retain some control. You can keep adding money for a recipient, and you can specify a holding period longer than 10 years. If giving to a child, be advised that he or she will have no access to the cash before adulthood. Any taxes due will be paid directly by Twentieth Century from fund assets, relieving you of this worry.

Giftrust, based in Kansas City, invests in small stocks. Other worthy competitors in this camp include FPA Capital (6.5% load, (800) 982-4372), PBHG Growth (no load, (800) 433-0051) and Heartland Value (no load, (800) 432-7856).

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Mutual Beacon

How $10,000 fared over 5 years ending 2/28/95

Fund: 18,786

S&P; 500: $17,110

FUND: Mutual Beacon

ASSETS: $2.5 billion

ORIENTATION: Low-risk stocks

PHONE NUMBER: (800) 553-3014

SALES CHARGE: None

MINIMUM INVESTMENT: $5,000

Washington Mutual Investors