Heady gains in aggressive funds raise questions on holding power
Spooked by conflicting movements in interest rates and a stock market in the doldrums, mutual fund investors are beginning to wonder if they should leave their money with the aggressive growth funds. These high-capital appreciation funds topped investment performance ratings during the past year's bull market.Skip to next paragraph
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Still, investors remember that the highly speculative funds, which have historically performed well during roaring bull markets, tend to fall faster and further than other funds when the market turns bearish. Thus, some investors may now be searching for more conservative funds.
During the third quarter, notes Sheldon Jacob, publisher and editor of the ''No-Load Fund Investor,'' a quarterly newsletter that tracks the performance of some 300 no-load funds, ''it was a period of correction. And when you get into a correction, the leading funds tend to be the conservative funds - the income funds.'' So according to Mr. Jacobs's calculations for the third quarter - which precede by several weeks the funds' public announcements - mutual funds like the Windsor Fund, ''a very sluggish growth fund,'' and some international growth funds have outperformed the aggressive mutual funds.
For the nine months ending Sept. 30, however, the high-flying aggressive growth funds have continued to keep their lead in the performance sweepstakes. ''The average aggressive growth fund is down only 2 percent or 3 percent during the third quarter.'' And since their performance earlier in the year outdistanced by far all other contenders, most aggressive growth funds show superb results so far this year.
Hartwell Leverage Fund, for instance, was up 79.5 percent for the year ending Sept. 30. Fidelity Technology is up 133.4 percent in that same time frame, and Fidelity Magellan Fund is up 83.6 percent. Delta Trend Fund, the highest performer for the the first six months of 1983, at 73.13 percent, is up 58 percent for the first nine months.
But if investors remember with some trepidation the tradition of downside potential for the aggressive funds, the men who manage the money seem undaunted by the recent stock market correction this summer. ''Only a handful have switched to a higher cash position for protection,'' Jacobs says. ''Even if the portfolio managers believe there will be a correction, no one seems to think it will be long enough or meaningful enough to switch into cash to protect themselves. Most aggressive funds just plan to ride it out and are running normal cash positions of between 0 and 7 percent.
Take Hartwell Growth and Hartwell Leverage Funds. Hartwell Leverage is one of the consistent high performers over the past 10 years, with a record of 572 percent gain in income and capital gain distributions, according to the Switch Fund Advisory, which ranks Hartwell's Leverage Fund 11th among the top 50 performing equity mutual funds over the past 10 years.
John Hartwell explains that although the recent stock market correction ''has hurt some of my stocks, I'm waiting it out. This is a three- or four-month correction that began in June. In fact, now is probably a terrific time to buy more stocks.''