As high-tech boom eases, old workhorse portfolios regain favor
Boston — The workhorses of the mutual fund industry have been around 30, 40, or 50 years. During the past year, however, these old stalwarts were also-rans when compared with the more glamorous high-tech, aggressive-growth mutual funds, which turned in dazzling performances in the stock market boom.
But today, as the high-tech boom has eased off, the workhorse mutual funds are again worth looking at. With the economy apparently shifting from a recovery phase to expansion, stocks held by these old-line mutual funds are becoming much more attractive.
For the most part, these old-line funds are invested not in the nation's very newest issues, nor in the very top blue chips - but in solid, fairly high-capitalization equities, some of them perhaps relatively young. Most of these stocks are cyclical in nature. In an economic downturn they do poorly; in an upturn they not only improve, but, because they represent industries that are the backbone of American industry, they very much reflect the upturn.
At least, that is what fund managers hope.
At the Chicago-based Kemper fund, Thomas V. Williams pilots Technology Fund, which was established in 1948. Originally named Television Fund, later TV & Electronics Fund, Technology Fund now has $700 million in assets. Although its current-asset value is 50 percent higher than in 1982, during the past year it has experienced net redemptions. Mr. Williams attributes this to the age of the fund: Many investors' long-term objectives have been reached, and they want to live off their earnings.
Technology Fund concentrates on higher-capitalization technology companies: American International, Schlumberger, Intel, IBM, Motorola, Lockheed, Burlington Northern, Digital Equipment. Many were bought long ago at low prices. Williams looks for companies that will be leaders five years or more up the road.
''I look for the very best people in a technology I think will endure, and I build positions over time,'' he says.''There are very few 'new issues' in the portfolio. I could have put a little into those, but I'm not satisfied I can know 360 names. The issues I have I know well. They give me good liquidity and let me sleep nights.''
Williams stays away from utility stocks, even though these currently have good yields. He believes utilities give a mutual fund liquidity problems. Neither does he acquire ''shoes, soaps, and sugars,'' he says; he wants to maintain the technological flavor of the fund.
He is a bit of a contrarian, staying out of currently faddish biotechnology and health-care stocks, which he thinks are overrated. On the other hand, the Technology Fund portfolio has picked up oil and oil service stocks, even though the price of oil has flattened.
This can be explained at least in part by Williams's investment philosophy. Having managed Technology Fund since the late 1960s, he says his job is to forecast economic change, identify it, and then capitalize on it. He speaks of monitoring ''secular trends'' and playing ''facets of the economic cycle.'' In the oil and oil-service sector, he notes that, even though there has been a world oil surplus and a moderating of prices, the world's need for oil remains high.
One of the heftiest of these old-line mutual funds is run by Andrew Z. Furtak at Investors Diversified Service of Minneapolis. The IDS Stock Fund, founded in 1946, now has $1.5 billion in assets. Like Kemper Technology, IDS Stock Fund is seeing a number of older customers liquidate their holdings. The fund is up only 20 percent during the past year (slowness of the rise being attributed in part to a transition in fund management). Mr. Furtak, who formerly managed an aggressive growth fund for Atlantic Richfield, says his current brief is growth and income. He says a fund with such large assets must maintain a contrarian attitude. Early in the year it was heavily into financial service stocks, autos, and retail concerns. Since midyear it has emphasized later-cycle industrials: chemicals, drugs, and autos.
Among other strategies, the fund watches for companies where management changes or divestiture appears to increase value. Furtak names RCA and Penn Central as two recent examples. He also tries to take advantage of stocks in recently shaken industries and hold them until they appreciate.
He has gone against the crowd by singling out airline stocks, specifically American, Delta, Northwest, and US Air. Another controversial holding is bank stock, with emphasis on industry leaders such as Chemical Bank and Bankers Trust. These, he says, ''have good earnings power even with the uncertainties in their industries.''
At Scudder Common Stock Fund in Boston, portfolio manager Michael E. Brown has been banking on the economy's moving from recovery to expansion in 1984: ''Consequently we have already completed our shift into a cyclically exposed portfolio. Our single greatest exposure is in the technology area.''
But Mr. Brown hastens to add that technology does not mean high-tech. Scudder CSF, which was founded in 1928, is invested in mid- to large-capitalization companies ($200 million or more). It is strong in the producer-durable area: companies producing axles, transmissions, farm machinery. The fund has also been holding capital-goods stocks which will presumably come into play as industries begin renewing and expanding plant and equipment.
Because the shift of assets of a mutual fund like CSF ($257 million at this writing, up from $162 million in 1982) is so massive, it must be done early. Consequently, Brown is looking beyond the economic upturn. Like his counterparts at IDS and Kemper, he is already preparing to sell into the high end of the market.
To Brown, an old-line fund like Scudder CSF may not grow as dramatically as high-tech funds during periods such as the recent August-June rush of the bull market. But more conservative funds are less volatile, growing steadily in value over the years.