Robert Lear was once the chief executive of East Coast brewing company F.&M. Schaefer, so he knows froth when he sees it. Right now, he is convinced that a sudsy top is capping the
Why the fear and trembling? In 1992, investors pumped equity mutual funds with a record $71.6 billion. In the 1993 calendar year, $ 128.2 billion poured into such funds. But many of the investors fueling this boom aren’t sophisticated shareholders with strong convictions; they are former savers hoping to beat the 2 percent annual interest rate banks offer on passbook accounts. Some observers fear that when the market encounters a correction-and inevitably it will-this new money could flee as fast as it came in.
There are ways to beat rush-hour traffic when the whistle blows. Selective, patient investors can reap gains even during tough times-and even in the high-flying mutual fund arena. One approach is to seek funds that offer a unique combination of safety and performance. But rather than slogging through the 4,300 equity and bond funds currently on the market, one might seek funds-and fund managers-that follow some general investment guidelines.
BETTING ON BLUE CHIPS
As long as interest rates remain low, and small investors continue to flood equity mutual funds with precious savings, the ize of any correction in the
Funds that trade in undervalued companies typically offer greater protection when share prices go south. Equity mutual funds with the lowest risk over the past five years, according to
One mutual fund earning Morningstar’s respect is the Mutual Beacon fund, part of the Mutual Series funds from Heine Securities. Manager Michael Price hunts for securities selling at a discount, not shying from bankruptcies, restructurings, and otherwise out-of-favor companies. This unorthodox approach has given investors healthy annualized returns over the past five years of 13.8 percent with a portfolio that includes
The Invesco Industrial Income Fund, which has posted an impressive 17.7 percent annual return on average for the past five years, also offers a smooth ride over rough terrain. Lead manager John Kaweske has blended his portfolio with cyclical, financial, utility, and international stocks-known companies including Michigan’s Chrysler; Madison, NJ-based Schering-Plough; Countrywide Credit in Pasadena, CA; El Paso Natural Gas; and Telefonos de Chile-not a bad mix to benefit from a mended American economy and growth overseas. The fund gets Morningstar’s highest five-star ranking and has a five-year risk average of 0.66, meaning its price volatility is a respectable two-thirds of the market norm.
Another cautious strategy now gaining popularity is to invest in funds that buy stocks overseas. Most international bourses do not move in tandem, so when the
New York-based Chemical Banking Corp., and Japanese insurer Tokio Marine & Fire.
Also highly recommended is the Templeton Foreign Fund, run by well-regarded manager Mark Holowesko. This value-oriented portfolio is weighted mostly in
Generally, conservative funds don’t sport the upside potential of their higher-octane counterparts. And these slow and steady movers usually spend longer periods making up ground. But their prudence also puts a floor on losses when the stock market runs out of road.
“In the long run,” predicts Barton Biggs, Morgan Stanley’s chief investment strategist, “the flood of money into mutual funds will end badly, as it always has in the past.”
Jonathan Burton is a senior writer at Worth magazine.