Mutual fund for bonds also caters to small investors
Boston — It's been doing better lately, but when the US dollar appears to be changing colors -- from greenback to shrinking violet -- compared with other currencies around the world, many big-time investors start looking for ways to get a piece of the overseas action. One place they turn is to bonds, issued by governments whose currencies are getting stronger.
One problem with this game is that the players are usually the sort of people and institutions who have many thousands of dollars to protect and invest. The "little guy" is kept on the sidelines. Besides, many people view currency speculation as too rough for anyone without heavy financial padding.
Now, Massachusetts Financial Services, seeing the potential of a large number of individual investors able to get in on the world money game, has opened a new mutual fund for them. Big spenders are welcome, too.
Carrying the heavy title of Massachusetts Financial International Trust -- Bond Portfolio, or MFIB, the new fund will invest in government bonds from countries outside the US and in government and corporate bonds in the US. And as a hedge against the possibility of hard times for all major currencies, the fund can also invest in gold bullion and gold mining stocks.
The concept, says Richard B. Bailey, president and managing partner of Mass Financial and chairman of the new fund, could just possibly help investors do something people buying bonds haven't been able to do lately: beat inflation. "We expect a gross yield of around 13 percent in the first year," he says.
Another unique characteristic of this fund sets it apart from almost every other mutual fund, including most money market funds: There is no minimum investment. While an individual share is worth just over $1,000, a person can buy any size fraction of a share they like, even 1/1000 of a share, worth $1.
Says Mr. Bailey: "We think this is what a mutual fund is all about: to give a person with a very modest amount of money the chance to do what only wealthy individuals have been able to do until now."
"But we think it will also appeal to people with larger amounts of money," he adds quickly.
The new fund officially became available from registered brokers and life insurance broker-dealers on Feb. 25. While new investors may be expecting to see a portfolio laced with bonds from all over the world and read about all the gold they partially own, they might be surprised to find it is currently invested heavily in good old American dollar-denominated securities.
Stressing that MFIB is an international fund and not just a foreign fund, Mr. Bailey points out that about 65 percent of its portfolio is currently in US notes. With the rate on T-bills running in the 14-15 percent range, interest rates in the US are higher here and "we're going to take advantage of them while we can," he says.
But sooner or later he feels, this situation will change, and the fund will look to other countries.
One place Mr. Bailey expects MFIB will be sending more of its shareholders' money is Britain, where he feels the pound will eventually get stronger, "though it's way down now." Currently, only about 15 percent of MFIB assets is in British bonds. Another 15 percent is in Japanese bonds, and 5 percent "is in reserve while we watch the [West German] deutsche mark very closely."
Although MFIB is heavily invested in the US now, things might have been different had it been in existence several years ago. After an almost total collapse last year, the US bond market did manage a rally later in the year and has been gaining in 1981. Still, the 38 percent return earned by US bonds on average from 1972 to 1979 was only about half that of the next lowest performer, British bonds, and less than one- sixth the return of Swiss franc-denominated bonds. (See chart.)
Mass Financial actually was ready to introduce this fund a couple of years ago, Mr. Bailey said. But the US bond market was still strong enough that brokers were showing little interest in the idea. It wasn't until bond prices dropped last year that the brokerage community started asking for a way to move investor's money to safer havens.
"That's when we dusted off the working papers and started putting this thing together," Mr. Bailey remembered.
To help Mass Financial put the thing together, the company enlisted the aid of a British firm, Lombard Odier International Portfolio Management Ltd., a subsidiary of a Swiss bank, Lombard, Odier & Cie. The firm will serve as subadviser for all nondollar denominated securities as well as gold.
MFIB can invest up to 10 percent of its portfolio in gold bullion and up to 20 percent in gold mining securities. But for now, the percentage is zero. While gold prices have been falling recently and are currently in the $460 -an-ounce range, Mr. Bailey would prefer to see the price get below $400 before the fund starts buying it.