Independent commentary on individual mutual funds
Fidelity Equity-Income
Type: Large value stocks
Size: $15.5 billion
Phone: (800) 544-8888
Sales charge: none
Morningstar rating: HHHH
Total return:
YTD: +2.9%
1996: +21.0%
1995: +31.8%
Fidelity Equity-Income has been steady, though unexciting. Since Stephen Petersen took over this giant fund in 1993, returns have hovered near the large-cap value average. That’s a respectable showing given the fund’s conservative strategy. Petersen will only buy stocks with yields that are at least equal to the S&P; 500’s. That requirement keeps the portfolio grounded in value stocks, so that price risk is pretty tame. Also, Petersen tends to move toward out-of-favor sectors where relative valuations are lowest. Another factor in the fund’s moderate volatility has been the portfolio’s tremendous diversification, with more than 400 securities. Considering that large-cap value funds have the highest five-year total returns of any diversified-stock strategy, this might be a good time to emphasize caution over glory. Petersen’s mild-mannered approach will come in handy when the market heads south.
--Russel Kinnel for Morningstar, March 28
*
T. Rowe Price European Stock
Type: European stocks
Size: $826 million
Phone: (800) 638-5660
Sales charge: none
Morningstar rating: HHHH
Total return:
YTD: +0.6%
1996: +25.9%
1995: +21.9%
Most of T. Rowe Price’s equity offerings pursue fairly conservative strategies for their categories. This trait is especially pronounced among the family’s international-stock funds. This fund, for example, focuses on Europe’s bigger markets and largely avoids its smaller ones. At the same time, the fund, which follows a growth-at-a-reasonable-price strategy, emphasizes large stocks and goes light on small stocks. The fund’s management also tends to keep its country weightings steady, and it sticks with the issues it buys; turnover is less than one-third the group norm. This rather mild approach has led to relatively moderate year-to-year results. Yet despite just one superior showing in its history, the fund’s overall record is strong. Its long-term returns show that decent results year after year add up over time. Further, its emphasis on large stocks in major markets has kept volatility under control.
--Bill Rocco for Morningstar, March 28
*
Dean Witter U.S. Government Securities
Type: Government bonds
Size: $6.2 billion
Phone: (800) 869-6397
Max. sales charge: 5%
Morningstar rating: HHH
Current yld.: 6.3%
Total return:
YTD: nil
1996: +3.2%
1995: +16.7%
This fund is getting better all the time. The two key elements of manager Raj Gupta’s strategy are a rich weighting in mortgages to take advantage of their yield-to-maturity edge over Treasuries, and duration [maturity] management to enhance total return. The fund now has 80% of assets in GNMA mortgages, well above the 53% held by the average fund in the intermediate-term government bond category. Since 1994, when Gupta pushed the fund’s mortgage stake to 80%, its returns have been above the group’s average. Gupta’s wary duration management has also helped performance. He kept duration near five years coming into 1996, which helped when the market slid early on. He’s using similar caution now. Gupta is worried about interest rates in the near term because the Federal Reserve seems disposed toward lifting them further. Although Gupta has lifted this fund to a respectable level in his tenure, the rate of improvement is slowing. But if he merely keeps the fund at its current level, it should remain a decent investment.
--Todd Porter for Morningstar, March 28
*
Star ratings are risk-adjusted performance ratings on a scale of 1 to 5 (5 being the highest), based on at least three years of fund data, with greater weight given to five- or 10-year data if a fund has existed for that long. Funds less than 3 years old aren’t rated.
These evaluations are excerpted from Morningstar Mutual Funds. More information about these or other funds can be purchased directly from Morningstar in print or software form. To inquire, call (800) 735-0700. To submit a fund for possible review in this column, write FUNDamentals, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. Fax: (213) 237-7837. E-mail: business@latimes.com
