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MUTUAL FUNDS. [ The steady returns of old funds...] ... but some new funds are worth a careful look

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Another fund, called the Pasadena Growth fund, is less than a year old, but has already gained $13 million in assets solely through word-of-mouth, says its manager, Roger Engemann. This no-load, open-end fund also relies on small but fast growing companies, which do better than larger companies over long periods of time, Mr. Engemann says.

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Although his other mutual funds invest in larger companies, he says, this one doesn't, and is geared to those who ``don't want the volatility that growth-oriented companies have demonstrated over the past few years.''

But while a lot of young funds show very good early performance records, such high percentage gains can often be misleading, says Michael D. Hirsch, vice president and chief investment officer at Republic National Bank of New York.

Investing in new funds is ``a mixed bag,'' Mr. Perritt adds.

Why?

Because initially, newer funds tend to be better performers. And being small, they have a smaller and more flexible asset base than a larger fund, and can therefore buy in and out of a stock much more quickly without disturbing the price.

But being small is no guarantee that a fund will perform well. ``Size has got to be allied with the right kind of philosophy and management,'' Green says.

This same flexibility can bring an equally large percentage drop. And while new funds often overtake larger, older funds on the [market] upturn, he says, they also react more to market fluctuation.

A rash of ``mutual fund clones,'' as one small fund administrator called them, have caused investment analysts to warn those interested against jumping at young funds that show immediate big gains in performance.

``You've got to watch out for a lot of new funds that are merely following an investment fad,'' Perritt says. Funds that come out in the middle, or at the tail end, of a market spurt, may be due for an equally immediate drop, he says.

A lot of these are specialized funds, which can be easily avoided by working only with diverse, and more conservative ones. ``If they're specialized in an area that's very hot, you've got to be leery of them,'' Mr. Norwitz says.

Those that are doing exceptionally well, like the gold funds over the past year or so, Green says, may be viewed by the novice as a very good investment. But being so dependent on special circumstances usually is not a very good strategy, especially for a young fund.

Many of the prosperous new funds, like the year-old Babson-Value Fund, are successful simply because they are as ``sensible'' as other mutual funds that have been around longer, Perritt says. And they often come from a well-known family of funds with a history of stable management.

Because the environment has become so competitive, says Perritt, ``fellows coming out with a single fund probably don't stand a chance of sticking in the long-run.''

``But if it's made it through three years, then it's passed the market test,'' says Michael Hirsch.

Although an uncommon problem, questions can also arise with the objectives in a fund's prospectus. ``Sometimes, even though a new fund has stated its objective, it might be groping around for a specific style of investing,'' Mr. Rugg says. This is very rare indeed, analysts agree.

But says Green, you sometimes do find a manager who changes his mind after a fund has come to market, and shifts the weight of his portfolio. If he does, however, he runs the risk of being blamed for any decline experienced by his fund. The best way to insure against this is to do thorough research on the consistency of the manager's investment style, analysts say.