The Funds Are Falling

The managers of mutual funds have been performing poorly lately. During this year's first half, the composite in dex of shares listed on the New York Stock Exchange dropped an average 8%. The decline for mutual funds was close to 12%. Of the 369 funds ranked by Manhattan's Arthur Lipper Corp., only six managed to post any gains.

Generally, the funds that rose the fast est last year fell the fastest this year.

Not one of the ten biggest gainers of 1968 managed to climb at all in this year's first half. Their showing confirmed Wall Street's axiom that"go-go" funds can seldom put together two good years in a row because it is almost impossible consistently to pick stocks that will spectacularly outperform the mar ket. Last year's rich winners were those fund managers who correctly foresaw that the market would rally after President Johnson's renunciation. This year those managers failed to anticipate that the market would tumble after bankers raised the prime rate to 81/2% in mid-May. Many of the go-go funds were loaded with thinly held stocks of nursing homes and computer-leasing firms, which were badly battered by the Government's anti-inflationary drive.

Summer Rally. The Neuwirth Fund, which last year soared 90% in per-share value to rank No. 1 in the U.S., fell 16% in the first half and dropped to 305th place. The Mates Investment Fund, which gained 73% last year, has fallen to No. 367. Gibraltar Growth, which was in third place in 1968, dropped 13% and is now 254th.

It is not surprising that funds specializing in volatile issues tend to win big in rising markets and lose big in falling markets. In addition, a number of the newer funds are run by self-confident young men who, after their great gains in past years, have become convinced of their own infallibility. Now these portfolio managers must decide whether the market's upswing last week -- when stocks rose about 2% -- marks the beginning of a summerrally. One of the most successful young money managers admits: "I would be happy if we just broke even this year."

By contrast, the larger, older funds, which tend to balance their investments between growth stocks and blue chips, stood up fairly well in the declining mar ket. Investors Mutual, the largest of all, fell only 4.1% and rose in the standings from 245th place to 33rd. Massachusetts Investors Trust fell 4.5% and moved up from 228th to 38th. Normally, any losses at all would be nothing to crow about, but so far this year only 95 funds have managed to out perform the Dow Jones average, which dropped 7.5%.

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