Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Businessweek Archives

A Very Good Year Especially On The Fringes

Investing in 1994: MUTUAL FUNDS


The hottest mutual fund action in 1993 was not in the U.S. but overseas. The average equity mutual fund was up 16.5%, besting the 9.25% total return in the Standard & Poor's 500-stock index. But a good share of that boost came from the stellar performance of international equity funds. These include Pacific funds, European funds, foreign funds (which only invest abroad), and world funds (which invest both abroad and in the U.S.).

International funds were by no means the only winners. All in all, "it has been a very good year across the board," says analyst John Rekenthaler of Morningstar Inc., the data company that tabulates fund performance for BUSINESS WEEK. Yet in both equity and bond funds, he adds, "you were best off on the fringes. Returns were strong in part due to more aggressive specialty investments." That included not just overseas funds but those focusing on gold, small companies, natural resources, convertible issues, and high-yield and international bonds.

Equity funds, though, generally did very well compared with the overall market. While U.S. diversified equity funds were up only 10.8%, they still beat the S&P. That wasn't bad considering that in most years they lag the S&P, on average, by about two percentage points. Out of 19 stock-fund categories, all but one beat the S&P index and 16 made double-digit gains.

The hottest new kind of mutual fund category was emerging markets. Many of those funds are Pacific Basin funds, which were up an average of 49%. Some brand-new funds, such as Fidelity Emerging Markets and Newport Tiger funds, which invest in countries such as Hong Kong, Malaysia, and Singapore, topped the charts with returns of more than 60%. Many of the largest equity mutual funds also boosted their returns by putting some of their assets to work overseas. The EuroPacific Growth fund, from Los Angeles-based Capital Research & Management, was up 31.7%. International bond funds were big winners as well. While low rates made the money-market crowd restless, world bond funds, which buy mainly non-U.S. issues, posted an average 15.4% return.

Precious-metals funds topped the charts, with a 78.6% rise. Half of the top 50 list were gold funds. Because of the many mining stocks that trade there, the American Stock Exchange was up 16.8%. By far, the top fund of 1993 was Lexington Strategic Investments, which was up 248%. It invests only in South African gold shares and has done well by buying undervalued mining companies that have appreciated along with rising gold prices.

But gold tends to be a very volatile and risky category. How volatile? In 1992, Lexington was the worst fund--off almost 60%. Even so, Caesar M.P. Bryan, the fund's manager, remains guardedly bullish. "I still think the fund is very well placed if we get gradually appreciating gold prices," he says.

Indeed, most categories of equity mutual funds did quite well. After gold, technology funds were the best specialty funds, up 20.6%. And natural-resource funds posted an 18.2% gain, driven by higher U.S. natural-gas prices. Brian Posner, who manages Fidelity's Equity-Income II fund, says that continued tight supply of natural gas and rising oil prices, which he thinks have bottomed out, could mean continued gains for this


Part of the solid performance of several of Fidelity's biggest funds, in fact, can be credited to their bets on natural resources and technology. The two biggest holdings of the Magellan Fund, which was up 22%, were semiconductor companies, such as Motorola and Texas Instruments, and natural-gas companies, such as Burlington Resources. Magellan also had a big position in U.S. Treasury bonds when they took off. Now, Magellan's Jeff Vinik is building up a major position in automotive stocks, as well as a few special situations, including Sears, Roebuck & Co. and Lowe's Cos.

CRITICAL CARE. It was midsize growth stocks that drove the Twentieth Century Ultra Fund, which was up 19.5% in 1993. That's on the heels of the fund's measly 1.3% gain in 1992. The fund's biggest positions were in communications, computer software, and semiconductors. Now the fund is rotating into smaller, faster-growing names in these and other sectors to keep up with the fund's huge growth from $400 million to $8 billion in the last three years. "As long as the economy holds up, and people don't shy away from stocks, and rates stay low, stocks offer relatively attractive total returns that will last for the next year to two years," says James Stowers III, the president of the Twentieth Century Investors Inc.

The worst performers were health-care funds, which were up 0.2%. Largely due to uncertainty about President Clinton's health-care reform plan, the list of worst-performing funds were littered with names like Invesco Strategic Health Sciences, Merrill Lynch Healthcare, and Putnam Health Sciences. But Jordan Schreiber, the manager of Merrill Lynch Healthcare fund, sees some bright spots in the coming year. He is focusing on certain HMOs, biotech companies, and foreign health-care stocks. The group "will be up 4% to 5%" in 1994, says Schreiber.

This year's healthy returns weren't lost on yield-hungry investors. Equity mutual funds took in a record $104.2 billion through Oct. 31, besting 1992's total inflow of $78.1 billion. And bond funds took in $103.8 billion, compared with $93.5 billion in 1992. Most of all, 1993 will be remembered as the year international investing caught fire. Some $22.5 billion went into global funds, compared with $2.3 billion in 1992, with most of that going into global stock funds, says the Investment Company Institute.

Though ICI doesn't track inflows for the emerging market funds, they certainly attracted big sums from investors. But even the pros admit emerging markets will have a tough time continuing at this torrid pace. For years, these markets languished outside the investment mainstream. But in 1993, that all changed. "A lot of that value has been recognized this year. We won't have 50% to 100% returns," in 1994, says Madhav Dhar, who runs Morgan Stanley's Institutional Emerging Markets and Asian Equity Funds. "Expect a more sober 15% to 20%." Dhar's biggest position in the Emerging Markets fund was in Brazil, whose market went up 120% in 1993.

Among bond funds, GT Global High Income headed the charts, with a 48.5% gain. It invests in junk debt issued by governments of developing countries. Its biggest and most profitable positions were in Latin American debt and also Moroccan, Polish, and Nigerian government debt, all of which is below investment grade. While there is still lots of potential for these and other fledgling markets, 1993 will be hard to beat, since prices fell dramatically as world investors recognized their value. "We won't do as well in performance terms," says Robert Allen, a senior vice president for GT Capital Management, who expects returns in the 15% to 20% range next year.

High-yield, or junk, bond funds turned in an average 18.1%. The economic recovery and low interest rates and inflation mean improved credit quality, higher earnings, and lower coupons for junk issuers. "1994 will be good but not as good as 1993," says Peter Avellar, who manages the Dean Witter High-Yield Securities fund, which was up 30.2%. He sees returns in the 13% to 15% range in 1994, which by far will top what's available in investment-grade bonds.

Evan R. Steen, manager of Paine- Webber's High-Income fund, which posted a return of 21.1% this year, says these favorable conditions will enable more companies to deleverage through refinancings and initial public offerings. Steen attributes the past performance of PaineWebber's fund to a strategy of buying junk issued by "stable improving" companies, rather than focusing on interest-rate sensitivity.

"VERY COMFORTABLE." Municipal bond funds, star performers in 1993 with an 11.4% return, should continue to shine in 1994, funds managers say. The two key reasons are the higher marginal federal income tax rate under the new tax law and the dramatically reduced supply of new issues. According to Thomas J. Fetter, director of municipal investments at Eaton Vance Management, which had four of the top 21 tax-free bond funds in 1993, the supply of new issues next year is likely to drop to about half of the nearly $300 billion issued in 1993. Although municipals may not produce the double-digit returns of the last few years, Fetter expects that returns next year will be "'very comfortable."

Boosted by declining interest rates, convertible bond funds also had a good year, with the average fund returning 14.4%. But Hugh H. Mullin, portfolio co-manager of the Putnam Convertible Income-Growth Trust, which posted a return of 15.9% in 1993, doesn't expect the convertible market to continue performing "at the same magnitude for the next couple of years."

Treasury-only funds that invest in zero-coupon bonds were among the other bond-fund leaders. Four Benham Target maturity funds posted returns of 22.6% to 41%. But watch out--because zero-coupon bonds do best when rates fall and get hammered when rates rise. With rates perhaps approaching an upturn, these are risky funds to own.

If the economy stays strong and rates stay low, 1994 could be another good year for mutual funds. But investors will find it tough matching 1993 returns, an unusual year when most money managers beat the averages.HOW STOCK-FUND GROUPS FARED IN 1993

Total return*




WORLD 26.98

EUROPE 22.18










INCOME 12.41








S&P 500 INDEX 9.25

*Appreciation plus reinvested dividends and capital gains through Dec. 10



Assets* Total return**

Billions 1993 5-yr. avg.

Fidelity Magellan $30.33 22.04% 19.03%

Investment Company

of America 18.59 10.22 14.42

Washington Mutual

Investors 12.36 11.65 13.31

Vanguard/Windsor 10.42 18.52 11.29

Income Fund of

America 10.03 12.11 13.22

Janus 9.07 10.39 19.72

Fidelity Puritan 8.64 20.30 14.17

Fidelity Asset Manager 8.18 20.81 15.39

Vanguard Index 500 $8.09 9.18% 14.26%

Vanguard/Wellington 7.92 12.66 12.24

Twentieth Century

Ultra Investors 7.84 19.48 28.27

Vanguard/Windsor II 7.48 13.48 13.43

Fidelity Growth

& Income 7.27 17.75 17.75

Fidelity Equity-Income 6.41 19.34 12.58

Dean Witter Dividend

Growth Secs. 6.38 13.24 13.87


Wellesley Income 5.84 14.51 13.59

Fidelity Contrafund $5.79 19.07 % 26.01%

Putnam Fund for

Growth & Income A 5.19 13.44 13.49

American Mutual 5.17 13.23 12.88

EuroPacific Growth 5.09 31.68 14.86

Growth Fund of America 4.95 12.41 15.94

Twentieth Century

Select Investors 4.92 13.51 14.21

Fidelity Equity-Income II 4.80 17.42 NA

AIM Weingarten 4.79 0.98 16.36

Prudential Utility B 4.74 13.82 13.71

* As of Sept. 30 ** Includes dividends and capital gains




Total return

Lexington Strategic Investments 248.05 %

United Services Gold 109.30

Van Eck International Investors 103.49

Fidelity Select Precious Metals 101.04

Blanchard Precious Metals 99.79

Excel Midas Gold 95.74

Keystone Precious Metals 94.32

United Services World Gold 85.38

Morgan Stanley Instl. Asian Equity 84.07

Thomson Prec. Metals & Res. A 83.41

Vanguard Gold/Prec. Metals 83.15

Bull & Bear Gold Investors 81.67

Benham Gold Equities Index 80.53

Lexington Goldfund 78.41

Fidelity Select American Gold 78.38

DFA Pacific Rim Small Company 77.29

IDS Precious Metals 75.46

Dean Witter Pacific Growth 74.96

Van Eck Gold/Resources 74.93

Lexington Strategic Silver 72.61

Invesco Strategic Gold 72.38

Morgan Stanley Instl. Emerging 70.94

Merrill Lynch Dragon A 70.55

United Gold & Government 70.53

Pioneer Gold 68.89

Franklin Gold 66.90

Eaton Vance Greater China Growth 66.84

Fidelity Emerging Markets 66.07

T. Rowe Price New Asia 65.22

GAM International 63.91

EquiFund Hong Kong Natl. Fid. Equity 63.54

Govett Emerging Markets 62.88

Templeton Developing Markets 62.31

Scudder Latin America 61.04

Newport Tiger 60.31

Smith Barney Shearson Prec. Met. & Min. A 58.64

59 Wall Street Pacific Basin Equity 58.60

GAM Global 58.52

John Hancock Freedom Pacific Basin 58.17

USAA Investment Gold 56.50

Prudential Pacific Growth A 56.32

Mackenzie Canada 56.31

Oppenheimer Gold & Special Minerals 55.71

Scudder Gold 54.77

Merrill Lynch Developing Capital Mkt. 54.51

Dean Witter Prec. Metals and Minerals 53.68

Fidelity Pacific Basin 53.36

Govett Smaller Companies 51.70

G.T. Global Emerging Markets A 51.02

Rushmore Precious Metals Index Plus 50.55


Total return

Pilgrim Corporate Utilities -18.15%

Invesco Strategic Health Sciences -11.80

Dean Witter Capital Growth Securities -10.53

Invesco Strategic Environmental Svcs. -10.00

Excel Value -8.85

Jensen -7.97

Steadman Ocean. Technology -7.43

Yacktman -6.76

Pasadena Growth -6.35

Flag Investors Quality Growth -6.34

Reynolds Blue Chip Growth -5.93

Principal Pres. Dividend Achievers -5.87

Kemper Environmental Services -5.83

Rainbow -5.74

Beacon Hill Mutual -5.68

Voyageur Growth Stock -5.62

Wasatch Mid-Cap -5.40

Monitrend Summation -5.13

Merrill Lynch Healthcare A -4.87

Society Earnings Momentum Equity -4.81

Rightime Growth -4.74

John Hancock Freedom Global Rx -4.22

Franklin Rising Dividends -4.19

Eaton Vance Growth -3.96

Morgan Stanley Instl. Emerging Growth -3.88

Dean Witter Equity-Income -3.77

PaineWebber Dividend Growth A -3.45

Oppenheimer Global Bio-Tech -3.13

Putnam Health Sciences A -3.12

Anchor Capital Accumulation -2.82

Flag Investors Emerging Growth -2.76

One Group Blue Chip Equity Fiduciary -2.67

MIM Stock Income -2.60

Fountain Square Quality Growth -2.53

GAM North America -2.46

Midwest Strategic Growth -2.46

FAM Value -2.34

Boulevard Blue-Chip Growth -2.32

Rightime Social Awareness -2.31

John Hancock Freedom Environmental A -2.15

Blanchard American Equity -2.10

Vanguard U.S. Growth -1.95

Fidelity Select Biotechnology -1.94

First Investors Made In The U.S.A. -1.82

Dreyfus-Wilshire Target Large Co. Growth -1.50

Hawthorne Sea -1.47

Charter Capital Blue Chip Growth -1.40

Fidelity Select Health Care -1.32

Reynolds Opportunity -1.29

Fiduciary Exchange -1.25

Appreciation plus reinvested dividends and capital gains, through December





Total return

G.T. Global High-Income A 48.53%

Benham Target Maturities 2020 40.97

G.T. Global Strategic Income A 40.72

Benham Target Maturities 2015 34.84

Alliance Bond Corporate Bond A 30.64

Dean Witter High-Yield Securities 30.17

Keystone America Strategic

Income A 29.79

Benham Target Maturities 2010 28.45

FT International Income A 24.83

MainStay Convertible 24.57

Keystone Custodian B-4 24.30

MAS High-Yield Securities 24.17

G.T. Global Government Income A 23.98

Fidelity Capital & Income 23.69

Northeast Investors 22.88

Bull & Bear Global Income 22.83

Benham Target Maturities 2005 22.57

Loomis Sayles Bond 22.03

Standish International

Fixed-Income 21.91

Morgan Stanley Instl. High-Yield 21.49

Pacific Horizon Capital Income 21.36

Average of 838 funds 9.88


Total return

Evergreen Insured National Tax-Free 15.72%

Smith Barney Shearson Managed

Munis A 15.40

Cambridge Municipal Income A 15.01

UST Master Long-Term T/E Non-Plan 14.86

California Muni 14.82

Vista Tax-Free Income 14.73

Transamerica Tax-Free Bond A 14.68

Eaton Vance LA Tax-Free 14.68

Sierra Trust National Municipal 14.61

Flagship NY Tax-Exempt A 14.61

Fidelity Spartan FL Municipal

Income 14.43

Van Kampen Merritt T/F

High-Income A 14.42

Lord Abbett Tax-Free Income PA 14.39

MFS FL Municipal Bond A 14.26

Rochester Fund Municipals 14.20

California Investment Tax-Free

Income 14.15

MFS TX Municipal Bond A 14.15

First Investors Multi-St.

Ins. T/F AZ 14.07

Eaton Vance AZ Tax-Free 14.05

Eaton Vance National Municipals 14.03

Eaton Vance TN Tax-Free 14.02

Average of 694 funds 11.39

*Appreciation plus reinvested dividends and capital gains through Dec. 10


Leah Nathans Spiro, with Phillip L. Zweig and Suzanne Wooley in New York

blog comments powered by Disqus