Mutual funds regaining zip as stocks rise
Boston — For almost four years, mutual funds that invested in stocks and bonds looked like an out-of-favor big sister. They were forced to watch their baby brother, known as money market funds, get all the ''oohs'' and ''ahs'' from investors, and most of the money.
Big Sister is back. Falling interest rates and a soaring stock market gave the ''conventional'' mutual funds a 41.8 percent boost in assets last year, a jump from $55.2 billion to $78.3 billion, according to the Wiesenberger Investment Companies Service. Even this record level is still less than half the total assets in the money market funds, but for these funds, where long-term ''investors'' are harder to come by than short-term ''savers,'' that kind of growth is worth celebrating.
''We are seeing a rebirth of the mutual funds other than the money funds,'' says David Testa, chairman of the investment policy committee at T. Rowe Price, a Baltimore mutual fund. ''We're seeing very good growth in the equity funds.''
''These funds have just been going along doing very well with very little being said about it,'' notes Paul Johnston, editor of the Wiesenberger newsletter on mutual fund performance. ''The big story everybody's been watching has been the money market funds and, lately, the new bank accounts.'' Those federally insured, $2,500-minimum-deposit accounts offered by banks and savings-and-loans have been competing heavily with the money market funds since the first of them was introduced Dec. 14.
But several months before that date, in mid-August, the stock market began its record-breaking surge. That climb, combined with dropping yields on money funds, prompted many money fund shareholders to switch some of their money to stock, bond, and specialty (such as gold) funds. From a peak of more than $230 billion, money fund assets have fallen to less than $200 billion.
Even the so-called ''guru of the money funds,'' William E. Donoghue, has tried to adapt. In 1981, he purchased the Mutual Funds Almanac, a directory of over 650 of all types of mutual funds. The first edition of the almanac with his name on it was published last year. And early in March, his second book (the first was on the money markets and money market funds), ''No-Load Mutual Fund Guide,'' will be published (Harper & Row, New York, $13.95).
The growth of the non-money mutual funds can also be seen in a few additional statistics from the Investment Company Institute, the mutual funds' trade group: Net mutual funds sales, excluding money funds, reached $8.1 billion, up 265.8 percent over 1981's $2.2 billion net sales figure.
Although all types of mutual funds shared the bounty, some have been getting bigger shares than others since the stock market upturn last August.
''It's too early to have any precise data,'' says Michaal Lipper, whose Lipper Analytical Services keeps track of 550 mutual funds. ''But my nonscientific sample shows the gold funds with the biggest gain, followed by the small-company funds, with the technology funds in third place.'' The ''small-company funds,'' he said, include the T.Rowe Price New Horizons Fund, the Acorn Fund, the Explorer Fund, the Fidelity Magellan Fund, and the Scudder Development Fund. Also known as ''aggressive growth'' funds, these investment vehicles scored a 287 percent gain in net sales last year, ICI spokesman Reg Green said.
Other categories also showed impressive gains, ICI figures indicate. Growth funds' net sales jumped from $282.9 million in 1981 to $890 million in 1982, up 214.6 percent; growth and income funds were up 145.2 percent, from $324.5 million to $795.8 million.
One explanation for this surge, fund executives and analysts pointed out, was the heavy attention paid to the initial offerings of high-technology stocks like Apple Computer and Cetus. These events and the heavy coverage of other ''high tech'' industries - including cable television, home and office computers, and health care - got many people looking for investments in this field. But because the smaller companies are harder for the average investor to find and evaluate, picking winners can be difficult. Thus, the move to mutual funds, where professional investment managers have the time and expertise to select these emerging companies.
At Scudder Stevens & Clark's Capital Growth Fund, Andrew Massie, a vice-president and portfolio manager, said the interest in technology has led investors to companies like Intel, the semiconductor manufacturer; Northern Telecom, a Canadian-based telecommunications company; Amdahl, a computer manufacturer; General Instruments, a maker of cable TV equipment; and MCI Communications, a long-distance telephone company.
''One of the areas in which the US leads the world is technology,'' Mr. Massie says. ''The Japanese are up there, of course, but we have a lot of good companies to choose from.''
Many of the bigger, more established stocks have also benefited from the fattened mutual fund coffers, however.
''IBM is still one of the favorites,'' Mr. Lipper said. ''So is Telephone (American Telephone & Telegraph Company), surprisingly. The cyclicals have also moved nicely. GM, for example, moved from the high 30s to the mid-60s. Whirlpool was up about a third, and the forest products are also moving. The oils are not moving.''
Mr. Johnston at Wiesenberger agrees. ''Most of the funds still appear to be going after the IBMs and the other top blue chips,'' he said. ''It depends on the fund, of course. Some have been created to go after these little companies. But most are investing fairly conservatively. By and large, I haven't seen any unusual portfolio goings-on.''
The stock funds are not the only ones showing increases. The bond funds also improved, helped by the gain in the overall bond market and the preference of many safety-conscious money fund shareholders for bonds. Net sales for corporate bond funds were up 157.2 percent in 1982, and municipal bond funds increased 266 .2 percent, according to the ICI.
''Many of the people who came to mutual funds through the money market funds are concerned about safety,'' Mr. Testa said. ''They are more inclined to go into longer-term bond funds and tax-free bond funds.''
The switch of assets from money funds to stock and bonds funds is likely to continue this year, though probably at a slower pace, Mr. Lipper said. But even that pace will be lucrative. At the end of 1982, he notes, money fund assets stood at $217 billion. The equity, bond, and income funds might get 5 percent of that money in 1983, he guessed. ''But that's more than $10 billion,'' he said, and adding that to the $78.3 billion they had at the end of the year ''would be very good.''