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.

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.''

Mr. Hartwell is not troubled by the severe shakeout in some of the technology stocks. ''I look at companies with revenues between $250 million and $600 million with eight- to 10-year operating histories of growth of earnings,'' he says. ''I then buy into ones that have extraordinary potential for large revenues and earnings.'' He looks to the technology stocks: semiconductors, telecommunications, microcomputers. Among the technology brand names in his funds are Advanced Micro Devices, Intel, Motorola, and Monolithic Memories.

On the negative side of the technology scale, Hartwell avoids National Semiconductor. ''It is the sort of marginal company that, during every recession , one wonders whether it will survive,'' he says.

In the telecommunications area Hartwell liks Rohm, TIE Communications, and MCI Communications. ''One of the surest rules has been to bet against the phone company,'' he says.

He has also put some money into interest-sensitive stocks. ''I think that interest rates will probably decline 1 or 2 percent over the next month,'' he says. Therefore, he owns the shares of several savings-and-loan institutions, including Golden West, Ahmanson, and Federal Savings & Loan of Tucson.

Another interest-rate-sensitive play in his funds are mobile home manufacturers Fleetwood Enterprises and Coachmen Industries.

Hartwell is not the only aggressive growth fund that is counting on lower interest rates and investing in interest-rate sensitive stocks in the current environment. At Delta Trend Fund, one of the Delaware Group, David Scofield, the fund's portfolio manager, has emphasized a group of very cheap savings-and-loans as well as some home builders.

Mr. Scofield's general strategy was to take high profits in late spring by selling as many high price/earnings technology stocks as he could for tax reasons, he explains. He describes the past few months' activity in the market as a ''massive pullback, particularly in the over-the-counter market. The Apples , the MCIs - the screaming high flyers of the past year - have had a ferocious correction.'' Scofield sees this as a good sign, ''since it eliminates much of the speculative element in the market.''

Since the correction, Delta Trend Fund has been taking positions ''in the quality companies with low p/e's that have gone down with this correction.'' Among Scofield's picks are Dental World, an OTC stock that fell from $5 to $2.50 . ''There was no reason for it,'' he says. ''The volume was very light when it fell.'' He also holds Industrial Resources, a holding company for resources which he says has a shot at a solution for acid rain. And he likes Piezo Electric Products. ''It is down from $3 to $1.50'' because of the correction.

''We have taken advantage of the OTC to double up on some of the positions that could become winners over the next year and a half.''

For investors who are still skeptical about such strategies, it would be wise to study a 10-year record of mutual funds. While other funds may at times show more consistency, growth and aggressive growth funds occupy six of the top 11 spots in mutual fund performance over the past 10 years, according to the Switch Fund Advisory. Among the top ranking: Evergreen; Oppenheimer Special Fund; Twentieth Century Growth; American Capital Pace; American Capital Comstock; and Hartwell Leverage Fund.

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