All In The FAMILY.

Rating the best and worst fund companies

AN OFT-QUOTED MAXIM IS THAT YOU can't choose your family. That may be true--unless you're picking a mutual fund.

In an era when everything from retirement plans to passbook savings replacements have pushed money inflows into these vehicles to record levels, the selection process can be daunting. How can one possibly make the right match among the 7,000 or so funds that are out there?

You might want to get started by looking at mutual fund families, companies that operate a constellation of funds. At most, there are roughly 200 such clans to evaluate, making the task less onerous. You see, the beauty of the process is that you can structure your asset allocation mix at one company since you can choose from an array of stock, bond and sector funds.

The advantages: your portfolio can be reported on a single statement from the family that you select. Moreover, most allow you to engage in dollar-cost averaging--a strategy in which you commit to investing a set amount of money in the fund each month and, as a result, gain the flexibility of buying more shares when prices go down and fewer shares when prices go up. With the erratic stock market, such moves will help you make significant gains through buying more stocks during periodic dips.

However, Craig Evans Carnick, of Carnick & Rainsberger, a Colorado Springs, Colorado-based financial advisory firm, says investors should be mindful that many such families impose "loads"--those sales charges that can take a sizable bite out of your return. However, they permit you to make fund switches easily and without paying a new commission each time. Asserts Carnick: "Even with a family of load funds you shouldn't switch too often because you're generating a taxable gain or loss with every trade."

Also note that even though most families share a common investment philosophy--ranging from value investing to scouting growth prospects--the style of each portfolio manager may differ.

The question then becomes, how do you get started? Naturally, you'll want a topflight collection so it will pay to closely examine the performance of funds within each family. But ranking fund families goes beyond consideration of past performance. Look at whether the fund has knowledgeable representatives; a range of services; online access; readable account statements and comprehensive investment information.

To help you with your search, BE has compiled a number of screens. We have looked at families based on asset size and annualized total returns.

At our request, Wiesenberger, a Rockville, Maryland mutual funds tracking company, reviewed fund family performance during 1998, concentrating on the 10 largest groups in terms of total assets. Here, the approach was to determine what percentage of a family's funds beat the category averages. For instance, a domestic stock fund that returned 10% would be a minus because of their relative performance to S&P's return of 25%. The objective is for you to create a master portfolio of winners in each category.

Boston-based Financial Research Corp. (FRC), on the other hand, ranked fund families by their 12-month performances. Results were asset-weighted, meaning that the funds with the most assets had the greatest impact on the ratings. For example, Fidelity Magellan, which recently had $76 billion in assets, wielded more influence on the company's ranking than Fidelity Dividend Growth with $9 billion in assets.

Based on ratings from 0 (lowest) to 10 (highest), two families received FRC's perfect score of 10: Global Asset Management and Janus and Weitz. Funds run by American Skandia; Citibank (Citifunds); Gabelli; PIMCO Advisors and Transamerica garnered a score of 9. Keep in mind that some of these families, such as Global Asset Management, Weitz and American Skandia, offer a smattering of funds, so they probably wouldn't be considered a "go-to" fund family. Janus, the larger and better known of the lot, had a string of top-performers in 1998. Its three $10 billion-plus funds--Janus, Janus Worldwide and Janus Twenty--produced meaty returns of 39%, 26% and 73%, respectively.

Of the 10 largest fund families found in the Wiesenberger table, American Funds and Fidelity received a rating of 8 on the FRC list, while Franklin and Merrill Lynch lagged with a score of 2. Bringing up the rear: Berger, Dodge & Cox, Loomis Sayles, PBHG, Pioneer and Robertson Stephens all scored 1, while Neuberger Berman rated a 0 in the FRC ranking--its flagship Guardian Fund returned a miniscule 2.4% in 1998.

BE also worked with Morningstar Inc., a Chicago-based research firm, to review families with more than $5 billion in assets. We ranked them by three-year returns in four different categories--domestic equity, international equity, tax-exempt bond and taxable bond (see chart on preceeding page).

Best Fund Families By Sector

BLACK ENTERPRISE asked Morningstar Inc., the Chicago-based mutual funds research firm, to evaluate the top fund families. It ranked them based on the three-year average return of fund families with assets of more than $5 billion. They are:

                                        3-Year
                                        Average
Fund Family                # of Funds   Return

10 DOMESTIC EQUITY
Legg Mason                     8         28.93%
Janus                          8         27.27
One Group                     25         22.71
MFS                           31         22.64
GMO                            7         22.29
Morgan Stanley                 8         21.94
Dean Witter
Diversified Investors          5         21.91
MAS                            7         21.59
BlackRock                     23         21.50
Van Kampen                    34         21.41

20 INTERNATIONAL EQUITY
Janus                          2         22.56%
Phoenix                        5         17.89
American                       3         17.69
Harbor                         2         17.18
Galaxy                         2         15.19
Dreyfus Premier                7         14.84
STI Classic                    6         14.40
Concert                        2         14.40
Columbia                       1         13.59
Founders                       3         13.25

30 TAX-EXEMPT BOND
United Group                   2         7.48%
Alliance                      42          6.93
AAL                            1          6.87
USAA                           8          6.85
MAS                            1          6.69
Norwest                        9          6.59
Lord Abbett                   14          6.46
Strong                         4          6.40
Janus                          1          631
Smith Barney                  40          6.30

40 TAXABLE BOND
GMO                            5         11.12%
BT Funds                       2         10.70
Janus                          3          9.49
Nicholas                       1          8.50
PIMCO                         17          8.43
State Street                   8          8.22
  Research
Strong                         7          7.80
Eaton Vance                   10          7.79
Standard Ayer                  7          7.65
  & Wood
United                         6          7.61

Source: Morningstar Inc.

Janus placed among the top three in three of four categories and ranked a solid ninth in the tax-exempt bond listing. No other fund family ranked in the top 25 for all four categories. What's more, Janus posted excellent five-year returns as well--21.84% in domestic equity and 19.34% in international equity. Several companies, however, placed in the top 25 in three categories: Fidelity, Vanguard, Alliance, Strong, MainStay and Harbor funds.

Need even more help before making a decision? One possible source is the book, The 100 Best Mutual Funds To Own In America (Dearborn Financial Publishing, $19.95), which covers stock funds.

Of the 100 funds listed, 17 are from Fidelity, ranging from Fidelity Select Home Finance Portfolio, ranked No. 9, to Fidelity Emerging Growth Fund (No. 100). Excelsior Value and Restructuring Fund was ranked No. 1. Thirteen of these 17 funds are Fidelity Select funds, which focus on a variety of sectors. If you eliminate those funds--which are not meant to be the core of your portfolio--the four diversified funds are Fidelity Destiny I Portfolio (No. 71); Fidelity Blue Chip Growth Fund (No. 72); Fidelity Value Fund (No. 81); and Fidelity Emerging Growth Fund.

Aside from Fidelity, four fund families--Alliance, American Century, MFS, and T. Rowe Price--had four funds placed among the top 100, while Invesco, Putnam and Vanguard had three top funds on this list.

So what's the bottom line for investors? Fidelity and Vanguard, the two largest fund families, seem to rank at or near the top, no matter what the criteria. You probably won't go wrong by narrowing your focus to these families. Also, the recent success of Janus makes it another prime contender.

For conservative investors, Robert Markman, who runs a suburban Minneapolis firm that bears his name, steers clients to Vanguard, which he calls "the Volvo of the world of mutual fund families." He maintains that the company "exercises tight control over its portfolio managers. Vanguard wants them to stay in the middle-of-the-road so the performance is more predictable." Best known for its index funds designed to track such market indices as the S&P 500, the fund family tends to offer low expenses which boost returns.

For bond investors, Marty Kelman, a certified financial planner with Memphis, Tennessee-based Kelman-Lazarov Inc., often recommends PIMCO funds to clients. Although PIMCO has traditionally focused on institutional investors, it has developed a group of funds for individuals, with minimum investments as low as $1,000. And for those who prefer broker-sold funds, consider American, Oppenheimer and Alliance--families that consistently received top grades.

Whether investing in an orphan or kin, take a long-term view--give your fund between three to five years to produce the ample results that you want. But if you find that your collection of funds are not up to snuff, take comfort in knowing that you can always leave home and find another family.

Results of
Wiesenberger survey:

                       % Of. Funds(*)
Vanguard                     75.32%
American(**)                  72.00
Fidelity                      69.23
Morgan Stanley                62.50
  Dean Witter
Oppenheimer                   61.90
American Express              60.00
Merrill Lynch                 56.25
AIM                           50.98
Franklin                      42.00
Putnam                        41.67

(*) That beat category averages

(**) The American Funds family includes such popular funds as Washington Mutual Investors and Investment Co. of America.3