The good, the bad, and the average.A record number of folks jumped on the investment bandwagon in 1996 in search of '95's lofty gains. Last year was nearly as good, but '97 might prove to be a letdown. It Seemed That Investors From New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. To Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. Were dancing in the streets at the start of last year. And why not? Nineteen ninety-fee was one of the best ever for mutual funds--equity funds were up 31.08% compared with the overall S&P 500 stock index of 37.5%. But by the end of 1996, the tempo had slowed, although the year overall wasn't anything to frown at. The average stock fund rose about 20% in 1996 versus 22.96% for the S&P 500. The past two years have been a class act, say industry gurus. The Dow Jones industrial average Dow Jones Industrial Average The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. climbed more than 2,600 points, the S&P 500 soared 69.17% and the average general stock fund gained a total of 56.23% during 1995 and 1996. That represents the best back-to-back performance since 1979 and 1980, which had a total 75.10% gain, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Lipper Analytical Services Inc. in Summit, NJ, which analyzes and tracks more than 31,000 funds worldwide. In fact, a record $222.08 billion poured into equity mutual funds in 1996, with total assets of all funds climbing to $3.54 trillion, according to the Investment Co. Institute (ICI (language) ICI - An extensible, interpretated language by Tim Long with syntax similar to C. ICI adds high-level garbage-collected associative data structures, exception handling, sets, regular expressions, and dynamic arrays. ) in Washington, D.C. The average monthly deposit into mutual funds was $18.5 billion, compared with $10.7 billion in 1995. Today, an estimated 63 million Americans own mutual funds. A big factor for the widespread popularity is a boom in retirement accounts. ICI estimates that through the end of 1995, retirement assets--401(k)s, 403(b)s, pensions and individual retirement accounts--accounted for nearly 36% of all mutual fund assets Fund assets The total value of a portfolio's securities, cash, and other holdings, minus any outstanding debts. . Companies are increasingly offering 401(k) plans to their employees and are constantly adding to the number of mutual fund options within those plans. It was clear in 1996 that the best performing sectors were natural resources funds (up 32.74%); real estate funds (up 30.80%) and financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. (up 28.01%). This stands to reason, says A. Michael Lipper Michael Lipper (1 June 1932 – 18 October 1987) was an Irish Labour Party politician who served for four years as an independent TD for the Limerick East constituency. , CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. and president of Lipper Analytical Services, "given that real estate funds invest in REITs (real estate investment trusts), which are currently awash with cash; financial services funds invest in some of the world's biggest banks; and natural resource funds own some of the world's biggest oil companies." What can investors hope for this year? The forecast for 1997 is mild in comparison to the last two years. A tumultuous storm isn't on the horizon--just a slight correction, meaning share prices might surrender some of their heady gains at some point during the year. The economy is expanding slowly but steadily. Inflation and interest rates remain low and aren't likely to rise and if they do, only slightly. Wall Street sages aren't predicting Armageddon--just the end of high double-digit market gains. "Going forward, one would expect domestic stock fund performance to return to more normal levels--the 12% range," says Lipper. No matter. The prudent investor knows that mutual funds should be viewed as long-term investments. And mutual funds--particularly equity funds--remain the best place for investors to park their money. YEAR IN REVIEW: THE LAST ROUNDUP The biggest lesson of 1995 and 1996 is that you shouldn't place bets based on one-year performances. Several mutual funds that were at their peak in 1995--and still up in June of 1996--came tumbling down by Christmas. A prime example was top gun Garrett Van Wagoner The Van Wagoner was an American automobile manufactured between 1899 and 1900. Advertised as being "built on a simple plan that does away with several levers and push buttons", the car was built in Syracuse, New York, and could supposedly be "controlled with one hand". , who lead the Govett Smaller Companies Fund to a 43.98% compound annual return during his three-year tenure and started his own family of funds Family of Funds A group of mutual funds offered by one investment or fund company. Each mutual fund has different characteristics and can range depending on investment objective. Also referred to as a "Mutual Fund Family" or simply a "Fund Family". : Van Wagoner Mid-Cap, Van Wagoner 4 Micro-Cap and Van Wagoner Emerging Growth. The first half of the year, all three outperformed the benchmark indexes, each returning 35% or more. His hottest--up 49.7%--was Van Wagoner Emerging Growth. But its flame died down 15.5% during the second half of the year. This illustrates why it's important to have to a three- to five-year investment horizon. You should seek out funds that exhibit staying power--those that consistently produce good growth performance with little downward volatility. Many fund managers ran for cover as tech stocks took a beating from fall 1995 through winter 1996. However, White Oak Growth Stock fund manager John Oelschlager saw this as an opportunity to buy more tech shares at a cheaper price. "We continue to stay heavily invested--about G5%--in technology. It's not a narrow niche anymore; it's like saying we invest in manufacturing companies," he explains. The fund is also heavily weighted--about 20%--in banks, insurance and other financial services companies. Oelschlager says he looks for companies with good management and a strong growth rate relative to the price of the stock. "We try to use a little common sense and a lot of flexibility when picking stocks," he says. Oelschlager's investment style paid off royally in 1996. White Oak more than doubled, up 33%. The $75 million fund has 22 holdings. Some of its largest--each comprising 5%-6% of the portfolio--are Compaq, 3Com, Cisco, Citicorp and NationsBank. A BE top pick, Alger Capital Appreciation bested all aggressive growth funds in 1995 with a gain of 78.57%. But like many top performers that year, it too suffered a loss, posting only a 13.8% gain in 1996. But despite last year's less-than-rosy return, this fund is superlative when you look at its three-year cumulative total return of 98.69% and average annual return of 25.72%. The $157.4 million fund has 81 holdings and invests in both emerging and established companies offering new or improved products, or firms that are fulfilling an increased demand for an existing product line. The fund's top five industry groups as of December 31, 1996, were communications equipment, 12.9%; computer software, 10.6%; financial services, 10.5%; semiconductors, 8%; and retailing, 7.2%. Among its top 10 company holdings were Tellabs Inc., Intel, 3Com, Nike, Citicorp and Boeing. Unfortunately, the same technology stocks that lifted Alger Capital Appreciation in 1995 dragged the fund down in 1996. "The realization that technology stocks were running out of gas sort of snuck snuck v. Usage Problem A past tense and a past participle of sneak. See Usage Note at sneak. up on us," says fund manager David Alger David Alger born as David Dewey Alger (December 15, 1943-September 11 2001) was a financial services executive who died in the September 11th World Trade Center attacks. . "We went from a very overweighed position in technology--65%--to a moderate one--39%. But we did it incrementally. If we had done it right away in the fall of 1995, we would have saved a lot of heartache," quips Alger. Still, Alger says he is bullish about such tech companies as Ascend Communications Inc., which makes the switching boxes used to connect modems to phone lines for handling Internet traffic Internet traffic is the flow of data around the Internet. It includes web traffic, which is the amount of that data that is related to the World Wide Web, along with the traffic from other major uses of the Internet, such as electronic mail and peer-to-peer networks. , and Micron Technology Micron Technology ("Micron") NYSE: MU is a multinational company based in Boise, Idaho, USA, best known for producing many forms of semiconductor devices. This includes DRAM, SDRAM, flash memory, and CMOS image sensing chips. Inc., which makes DRAM memory chips for personal computers. "PC demand is very strong, so is the demand for greater memory capacity," explains Alger. "The whole industry is in a transition from four- to 16-megabyte memory chips." A stellar-performing fund, Flag Investors Value Builders posted a 24.6% gain last year. This $297.9 million balanced fund Balanced Fund A mutual fund that invests its assets into the money market, bonds, preferred stock, and common stock with the intention to provide both growth and income. Also known as an asset allocation fund. holds about 66 stocks and approximately 40 fixed-income assets. Its portfolio mix is about 68% in stocks, 25% in bonds (intermediate-term), 4% in convertible bonds and 3% in cash. The fund's largest holding--at 6%--is Conseco, a provider of insurance and annuity products. Conseco has made several acquisitions in recent years, including American Travelers Corp., all of which have added to the bottom line. It has a history of increasing earnings per share at an annual rate of over 20%. Other winners have been MBNA MBNA Monument Builders of North America MBNA Mercedes-Benz North America MBNA Maryland Bank, National Association MBNA Maryland Bank North America MBNA Mount Baker Nurses Association (Bellingham, Washington) , a credit card company; Citicorp; American Express American Express (NYSE: AXP), sometimes known as "AmEx" or "Amex", is a diversified global financial services company, headquartered in New York City. The company is best known for its credit card, charge card and traveler's cheque businesses. ; Key Corp. bank; Johnson & Johnson; McDonnell Douglas McDonnell Douglas was a major American aerospace manufacturer and defense contractor, producing a number of famous commercial and military aircraft. It merged with Boeing in 1997 to form The Boeing Company. ; Monsanto and IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) . Flag Investor mirrors the gains made by financial services companies. "We buy individual stocks, not sectors, however," says fund manager, Hoby Buppert, a vice president at Alex. Brown Investment Management. "We own a fair amount of financial companies, because we found a number of them that had very good investment value. Financial stocks performed substantially better than the market even though interest rates were rising, which is rare. Many sell at a reasonable discount to the market." Buppert's flexible value approach has served him well. In addition to looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. inexpensive stocks, he identifies well-managed, financially-sound companies that are experiencing positive change. "We like management that has a history of repurchasing shares and investing the money in growing the business in a manner that provides an adequate return on capital," he adds. SHOWDOWN IN '97: BIG VS. SMALL CAPS See Small capital Since 1990, the Dow Jones Dow Jones the best known of several U.S. indexes of movements in price on Wall Street. [Am. Hist.: Payton, 202] See : Finance industrial average--the blue chip stock index--has pushed through four 1,000 point-barriers on its way to 6,500. The longest riding bull market in history, it has not suffered a 10% decline in six years. Corporate earnings were up 19.2% in 1995. Now industry pundits say corporate earnings will grow about 8% in 1997. And a 10% correction is right around the corner. Earlier in 1996, growth funds were beating value funds, but that reversed by the end of the year. Equally, large cap stock funds, which invest in the big corporations like GM, AT&T and IBM, were big winners in 1996, but may trail small cap funds this year. "I am very optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the outlook for small cap stocks going into 1997," says Christine Baxter, the lead fund manager of PBHG: Emerging Growth Fund. "A lot of these small companies are growing regardless of the economy, because they are providing a needed service or introducing new products to the market. The average company in my portfolio is growing their earnings at 60%, with very little moves." Baxter is a bottom-up stock picker--building her portfolio one stock at a time. The $1.5 billion fund comprises 110 holdings. Its top three industry groups are technology, 40%i health care services, 16%; and consumer goods consumer goods Any tangible commodity purchased by households to satisfy their wants and needs. Consumer goods may be durable or nondurable. Durable goods (e.g., autos, furniture, and appliances) have a significant life span, often defined as three years or more, and , 13%. It comes as no surprise that the fund's top five holdings are tech companies: Sawtek, makes filters used in digital wireless equipment; Natural Microsystems provides software and hardware telephone-computer integration; Aspen Technologies makes software that aids chemical and drug companies in the manufacturing process; Video Server--whose clients are both large carriers like MCI (1) (Media Control Interface) A high-level programming interface from Microsoft and IBM for controlling multimedia devices. It provides commands and functions to open, play and close the device. (2) (Microwave Communications Inc. , who provide the services, and developers like Picturetel, who make the equipment--makes hardware and software, enabling companies to have multipoint videoconferencing A real time video session between two or more users or between two or more locations. Although the first videoconferencing was done with traditional analog TV and satellites, inhouse room systems became popular in the early 1980s after Compression Labs pioneered digitized video systems ; and Veritas Software Veritas Software Corp. was an international software company that was founded in 1983 as Tolerant Systems, renamed Veritas Software Corp. in 1989, and merged with Symantec in 2005. It was headquartered in Mountain View, California. provides utility that enhances file and volume management for large servers and sells to larger computer companies, such as Sun Microsystems Sun Microsystems, Inc. (NASDAQ: JAVA[3]) is an American vendor of computers, computer components, computer software, and information-technology services, founded on 24 February 1982. and Hewlett-Packard. "We like all the companies because of their growth rate," says Baxter. Veritas has a 40% growth rate, for example. "They recently completed the acquisition of Open Vision for roughly $300 million, which will enhance their product line as well as their distribution channel. They are selling at $43.75 per share and their market cap is $650 million." Taking a contrarian approach, Susan Paluch, managing editor of Chicago-based Morningstar Investor, suggests buying last year's out-of-favor funds (utilities, communications and Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. ), selling the most popular ones (real estate, emerging markets and mid-cap growth) and holding the least popular funds of 1994 and 1995 (precious metals Precious Metals Valuable metals such as gold, iridium, palladium, platinum, and silver. Notes: Investing in precious metals can be done either by purchasing the physical asset, or by purchasing futures contracts for the particular metal. , natural resources, health, convertibles and European). Her favorite picks are Vanguard Specialized Health Care, Fidelity Utilities, Fidelity Select Multimedia, Franklin Utilities, Flag Investors Telephone, New Age Media, Latin America Equity, Emerging Markets Telecommunications and Scudder Latin America. In order to hedge domestic stock portfolios and to take advantage of longterm opportunities, investors should seek out global funds, advises Gail Perry-Mason, vice president of investments at First of Michigan in Detroit. She also favors real estate, telecommunications and financial services funds. A GUIDE TO B.E.'S LIST BLACK ENTERPRISE's top mutual fund list showcases the best mutual funds from a pool of 9,000. The objective ranking, comprised by Lipper Analytical Services, is based on each fund's three-year cumulative total return compared with similar funds. We show returns for one-, three- and five-year periods to give readers a perspective on short- and long-term performance. The funds are listed under 10 separate categories to reflect their investment objectives (i.e., aggressive growth, global and balanced). The net asset value is the total value of all securities held by the fund divided by the number of outstanding shares. To indicate how much it will cost you to own a mutual fund, we have listed the initial minimum investment, the maximum sales charge Sales Charge A commission or fee paid by an investor at the time of purchasing mutual fund shares. The charge is paid to a mutual fund salesperson or financial advisor and is intended to provide compensation for the financial salesperson's efforts in assisting their client select and the total expense ratio. The sale fee, which can be as much as 8.25% of the amount you are investing, is listed as a per-centage. Some funds are no-load, meaning there's no fee, while others require lower fees that range from 1%-4%. Next to each fund, we show the value of $1,000 invested three years ago. There are six families of mutual funds that are black-owned and managed. However, they did not make our list. The best strategy for investing in mutual funds, advise financial experts, is to diversify--spread your money and risk across various investment styles. Ideally, your portfolio should comprise at least five mutual funds from different categories (newcomers should see table: "Great Starter Bets"). In this way, you can maintain a core group of funds group of funds See family of funds. to meet certain goals--retirement, buying a second home or financing a child's education--and achieve ultimate financial success. Great Starter Bets Five mutual funds to help first-time investors reap maximum returns
Min. Initial Max. Expense
Fund Investment Sales Load Ratio
Hancock Regional Bank B $1,000(*) 5.0% 2.09%
Seligman Commun & Info. $2,500(**) 4.75% 1.25%
Janus Worlwide $2,500(***) none 1.02%
PBHG Growth $2,500 none 1.45%
AIM Balanced A $ 500 4.75% 1.46%
Fund 3-Year Return
(ending 12/31/96) Telephone
Hancock Regional Bank B 23.7% 800-225-5291
Seligman Commun & Info. 29.5% 800-221-2450
Janus Worlwide 16.9% 800-525-8983
PBHG Growth 20.0% 800-433-0051
AIM Balanced A 15.0% 800-347-1919
(*) $25 per month if the money is deducted directly from your
personal bank account
(**) Or, $200 minimum plus $200 per month or $500 per quarter
(***) Or, $500 minimum plus $100 per month
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