How They Fared

A casual glance at investment statistics might suggest that 1968 was a vintage year for mutual funds. Most of them outperformed the market and, overall, the assets of 300 U.S. funds grew a healthy 22%, from $45 billion to $55 billion. Of 307 funds surveyed by Manhattan's Arthur Lipper Corp., 285 did better than the Dow-Jones average of 30 blue-chip industrial stocks, whose average 4.3% growth barely kept abreast of inflation. Altogether, 238 funds topped the 9.4% gain of the New York Stock Exchange's index of all its 1,249 common stocks.

Unfortunately, that record is more than a little misleading. The 69 funds that failed to outperform the Big Board's index account for some $21 billion--or more than 38%--of all the money in funds. Investors Mutual Fund, the industry's biggest (assets: $3 billion), grew a disappointing 8.45%. A sister fund, Investors Stock ($2.3 billion), gained 8.3%, while Wellington Fund ($1.8 billion) rose only 8%. Fidelity Trend ($1.4 billion), which registered a 34% increase in 1967, achieved no more than a 1.76% rise last year.

Deep Tsai. Eight funds actually declined in value. Among them was Gerald Tsai's $454 million Manhattan Fund. It rose 39% in 1967 but slumped nearly 7% in 1968--to wind up at the very bottom of the list. Though Tsai's 1967 performance was certainly above average, many investors expected much greater growth; in 1968, his fund was hit with higher than normal redemptions.

To fund managers, 1968 proved the general rule that the bigger they are, the more difficult they find it to grow through investment. "It's been a tough year," says Grady Green, vice president of the $351 million Channing Growth Fund. Channing ranked high in 1967, when it grew 47%; last year, with a growth of 2.6%, it was 296th. Like the Manhattan Fund and many other big funds, Channing was heavily invested in the more seasoned glamour stocks--Ling-Temco-Vought, Fairchild Camera, Polaroid--that declined during the stock slump before Lyndon Johnson's March 31 renunciation, and have been slow to recover. Big funds cannot move out of such stocks quickly without upsetting the market; but smaller funds can--and they did. In a highly selective market, says Channing's Green, "There is no doubt that a small fund has an advantage. After you get to a certain size, bigness itself interferes with your flexibility in moving in and out of stocks."

Of last year's ten fastest-growing funds, only four exceeded $10 million in assets. Fastest rising was the Neuwirth Fund, which has assets of $94 million and achieved 90% growth. In 1967 --a year in which it was hard to do badly--Neuwirth grew 300%. But 1968, as 36-year-old Manager Henry Neuwirth says, "was more on the selective side." Neuwirth selected a number of long-depressed insurance stocks (CNA Financial, Safeco) early in the year, then rode them up as insurance companies became sought-after merger candidates.

Like Neuwirth, the other rapid risers specialized in new issues, thinly traded "Twiggy stocks" and the year's fads. Among the faddish items were the shares of computer-software companies, nursing homes and mobile homes. Nonetheless, it is a Wall Street axiom that the performance funds cannot put two spectacular years together back-to-back because stock fads shift so suddenly.

There is at least one exception: Fred Carr's Los Angeles-based Enterprise Fund. A big one by any standard ($748 million), it has ranked among the top 25 in growth for six years running, and last year rose 44% to No. 11.

Will the larger funds do better this year? They well may, especially if the new Administration succeeds in dampening inflation, which has been the breeze behind many of the stylish stocks in the smaller portfolios. Right now, though, managers of performance funds tend to be wary of 1969. Neuwirth has some 33% of his assets lying about in cash. Though the big, conservative funds tend to fall back of the pack in an inflationary market, Wall Street well remembers that, in past market downturns, the smaller funds have been the fastest to fall.

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