Cream Of The Crop

This has been a gala year in the stock and bond markets. Lower interest rates, abetted by an ever-softer dollar, have sent stock prices to record levels. The prosperity has been across the board. A few investments, however, have excelled. What follows is a perusal of the best investments of the year to date.


As its name implies, Acme-Cleveland Corp. is as Middle American as cherry pie. It is the epitome of no-frills Rust Belt stoicism. Acme makes metalworking equipment, telecommunications test devices, and other heavy-duty gizmos. But its share price has been the epitome of glitz, rising some 140% in the year so far and making Acme the best-performing issue on the Big Board that began the year at more than $5.

Acme is hardly a paragon of growth. Sales have been steadily declining for years. But the company has repositioned itself for growth, selling off its arcane twist-drill subsidiary in recent months and beginning to make acquisitions in the hot telecommunications business.


High-technology stocks have been wowing investors for most of this year. And one of the most explosive niches in the high-tech arena has captured the imagination of appearance-conscious individuals in the U.S.: hair removal. Tweezers? Forget about it. Thermolase, a fortunate company with a big stake in this technology, zaps those little suckers with a laser--and Wall Street is suitably impressed. The San Diego company's shares have almost quadrupled, climbing 280% in the year to date.

Thermolase shares got a boost when the Food & Drug Administration O.K.'d its hair-removal system. It's a small company--the last quarter showed sales of $6.1 million--but watch out. There are lots of unwanted follicles out there.


Zygo Corp. is based in Middlefield, Conn., a farming community known for its apple orchards. But there's nothing pastoral about Zygo, which sells equipment to semiconductor and disk-drive manufacturers and to optical companies. Propelled by the explosive growth in semiconductors, Zygo's shares have climbed 275%, making it the best-performing over-the-counter stock that began the year at $5 or over.


It's deja vu time, apparently. Semiconductor manufacturers were the top-performing stock group at this time last year, and so it is this year. Semiconductor stocks climbed 47% in the year to date. Demand from overseas, fueled by the weak dollar, has propelled shares of semiconductor makers, particularly Intel Corp. The Semiconductor Industry Assn. expects global demand for computer chips to climb 40% in 1995--more than twice the rate predicted last September.


With computer-chip stocks climbing so dramatically over the past few months, it's not surprising that mutual funds that invest in such stocks would share in the wealth. The best-performing stock fund of the year to date was the Fidelity Select Electronics Portfolio, up 45% in the year to date. Under portfolio manager Marc Kaufman, the fund invested heavily in semiconductor manufacturers, particularly Intel.

Kaufman is a shy sort who would not consent to an interview. But he did respond to written questions. Kaufman says he looks "mainly for companies that benefit from either a new-product cycle or favorable industry trends." And while chip stocks are "likely to be volatile over the near term, it is my belief that patient investors will be handsomely rewarded." Impatient investors, too, if the past is any guide.


Modesty must be on the rise among fund managers this year. David W. Schroeder, who runs the top-performing Benham Target Maturity Fund 2020 Portfolio, cheerfully consented to an interview. But he credited market forces for the fund's top-drawer performance--up 33.6% so far this year. "It's either at the top of the [fund performance] table or the bottom of the table," the 39-year-old Schroeder frankly observed. So far this year, declining rates have sent the fund to the top. As of last October, he notes, its performance was among the worst.

Target 2020's gyrations--it is among the most volatile fixed-income funds--stem from its portfolio of zero-coupon U.S. Treasuries. When rates shift, prices of zeros tend to move more rapidly than coupon-bearing bonds. The Benham zero funds should continue to do well if bonds keep sliding--but they'll be scraping the barrel-bottom if rates rise.


The hottest market anywhere can be found in the ancient city by the Bosporus. The volatile Istanbul Stock Exchange has zoomed 58%, in dollar terms, in the year to date--78% in Turkish currency. A package of spending cuts imposed by Prime Minister Tansu iller last May, at the height of a Mexican-style financial meltdown, has begun to reap dividends. Inflation is down to double digits after hitting a numbing 156% early this year, while the economy is expected to expand by 4% in 1995, after a 6% plunge in 1994.


Of all the commodity funds tracked by Barclay Research Group that started the year with over $5 million, none has performed as well in the year so far as Chicago-based KMJ Capital Management Inc. Portfolio Manager Kenneth M. Jakubzak boasts a 90% return through Apr. 30 in KMJ's diversified fund.

Jakubzak benefited, as did bond funds, from the decline in U.S. interest rates. But Jakubzak extracted considerably greater returns using leverage, which effectively boosted the fund's $8 million in assets fourfold. Jakubzak is no in-and-out trader. He holds his positions for anywhere from a week to three months. "I'm a systematic technical trader with a heavy discretionary overlay," says Jakubzak. Translation: He follows the charts, but not like a moth to a flame. A principle we all can employ.

— With assistance by John Rossant

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