Top money manager posts 18.4 percent 2nd-quarter return.

Top money manager posts 18.4 percent 2nd-quarter return

The No. 1 money manager in the Southland for the second quarter of 1990 was Woodland Hills-based Cullen, Fortier Asset Management Investment Counsel, which posted an 18.40 percent gain on its portfolio, compared with a 6.29 increase of the Standard & Poor's 500 index, a broad measure of the overall stock market.

In the No. 2 slot was Pasadena-based Provident Investment Counsel with a 16.20 percent return, followed by Roger Engemann & Associates, also based in Pasadena, which achieved a 15.20 percent quarterly return on its portfolio.

All three of the top managers for the quarter were "equity" managers; they played the stock market as opposed to bonds, or a mixed strategy of bonds and stocks, or other investments. (See chart.)

Rick Cullen, partner at Cullen, Fortier, credited his superior second-quarter performance to "being in the right stocks at the right time."

Lately, Cullen has liked health care and technology stocks, and he likes to buy issues that have good track records on earnings growth. On health care stocks, Cullen reasons, "The demographics favor the industry. People are getting older. When you need a pacemaker you buy it, you don't wonder about the state of the economy."

Cullen had 97 percent of his portfolio invested in stocks in the second quarter, and the remaining 3 percent in cash. But now, due to the Iraq-Kuwait situation, when he sells a stock he allocates the proceeds to cash.

The quarterly survey of Southland money managers is conducted by Prudential-Bache Securities Inc.

Said Brian Caramadre, vice president in the Woodland Hills offices of Prudential-Bache, "In the second quarter we saw a narrow-based rally in health care, technology and pollution control stocks. These are companies that are not dependent upon general economic conditions for earnings growth. We saw different kinds of money managers do well, depending on whether or not they were in these particular stocks."

For the purposes of this quarterly survey, Prudential-Bache also ranks managers by five-year total return, annually compounded, and the amount of "volatility," or risk, in the manager's portfolio.

The survey also groups money managers into four categories: equity managers, who invest primarily in stocks; balanced managers, who invest in a mix of stocks, bonds and cash; fixed-income managers, who invest primarily in bonds; and other managers, who invest in a wide variety of categories, such as convertible bonds or overseas stocks.

In the five-year category, which many say is a time period which more truly tests a money manager's mettle, the top manager in the Southland was the San Diego-based Brandes Investment Management Inc. firm, which posted a 29.54 percent annually compounded return for the five-year period ended June 30, 1990, for its accounts which invested in overseas markets.

An investor who gave Brandes $100 five years ago today would have $364.80, before taxes and inflation.

Investing in foreign stock markets was the key to the superior long-term performance, said Bob Wood, vice president at Brandes, which has $150 million under management.

"In the 1980s, foreign stocks have outperformed domestic stocks. The economies of several nations, such as Hong Kong, South Korea and Japan, have grown faster than the that of the United States," said Wood.

As a group in the five-year period, Southland money managers did not score particularly well when measured against market averages. Of the 25 equity accounts surveyed, only eight topped the 17.24 percent five-year annually compounded gain of the S&P 500.

Numerous academic studies have found that money managers, as a group, are unable to beat market averages.

Most investors could have achieved better results by throwing darts every year at a Wall Street Journal's stock listings than by using a professional money manager, according to the Prudential-Bache survey.

Prudential-Bache also rates money managers for the amount of "volatility" in their portfolios. Volatility is the amount by which a portfolio increases and decreases in value. Money managers with a volatility rating greater than 1.00 have portfolios that fluctuate in value more than the S&P 500 index; those with a lower-than-1.00 rating are more stable than the index.

Some portfolios have very little volatility, such as those invested in short-term government bills. The principal value of the portfolio is stable, and yields fluctuate with the market.

Other portfolios, such as small-capitalization, growth-stock funds, could have much higher amounts of volatility, with big surges and rapid declines in total value.

Ultimately, risk is measured by the degree of volatility in a portfolio.

In general, most investors would prefer a stable portfolio, although one with somewhat higher returns than a mix of short-term government bills, which generally offer relatively low yields.

The least volatile portfolio among Southland money managers measured belonged to the fixed income (bond) portfolio operated by West Los Angeles-based Campbell Reed Conner & Birdwell.

The balanced managers - those who invested in a mix of stocks, bonds and cash, all achieved relatively stable portfolios.