Mutual funds continue to outperform the general stock market.
Over the past five years, the average stockowning mutual fund rose 148 percent, compared with 91 percent for the Standard and Poors 500-stock average and only 54 percent on the Dow Jones industrial average, assuming all dividends reinvested. The consumer price index over the period is up 54 percent.
Over the past 12 months, stock-owning funds rose 27 percent, the S&P 500 rose 21 percent and the Dow Jones 13 percent (again assuming dividends reinvested) as calculated by Lipper Analytical Services. The CPI rose 13 percent.
Those of you who have been substantially out of the mutual fund market may not realize how much the industry has changed. An enormous variety of mutual funds are now available, to meet all kinds of investment aims.
Instead of picking one fund and crossing your fingers, you can spread your money over a range of funds, each one designed to catch different market conditions. You might, for example, have a couple of high-growth funds, a blue-chip stock fund paying good dividends, a gold fund and a money-market fund. (Money-market funds act as a high-interest savings accounts for cash not currently invested in the market.)
"Load" mutual funds carry a sales charge in the range of 8 3/4 percent and are sold by stockbrokers. "No-load" funds have no sales charge and are bought directly from the fund itself. Those funds listed below that carry sales charges are marked with an (L).
The six top-performing funds of the past 12 months, as tracked by Lipper, are all gold funds. All turned in triple-digit performances. The leader: the no-load United Services Fund (up 176 percent), followed by Stategic Investments (L), Research Capital (L), International Investors (L), Goldfund and Colconda Investors.
If inflation slows in the months ahead, gold prices could settle back -- in which case you might be more interested in buying growth stocks. Of Lipper's 25 top funds for the past five years, eight are capital-appreciation funds (the most aggressive stock investors) and 10 are growth funds (the next most aggressive).
Over the past year, the top funds in this category, all no-load, are Hartwell Leverage (up 78 jpercent), Twentieth Century Growth (up 75 percent), Constellation Growth (up 71 percent) and Sherman, Dean (up 69 percent.)
Those of you interested in diversifying internationally might look into the Transatlantic Fund (L, up 32 percent), the Merrill Lynch Pacific Fund (L, up 26 percent) and Scudder International (up 25 percent).
People seeking regular income typically search out bond funds or stock funds heavily invested in high-dividend blue chips and preferred stock. Unfortunately, these funds also have been among the worst performers.
Paul Reed -- editor of the United Mutual Fund Selector, a newsletter that follows mutual funds and makes investment recommendations -- told my associate, Virginia Wilson, that many bond-fund investors don't understand what they're buying: "They don't realize that bond prices fall when interest rates rise. They think of bonds as safe investments and are then alarmed when they see how volatile the market can be."
The twice-monthly United Mutual Fund Selector costs $55 a year, from United Business Service Co., 210 Newbury St., Boston, Mass. 02216. If you send Paul Reed your name and address, he'll mail you one copy free.
What to look for in a fund's past performance? "Triple-digit advances over the past five years," Reed says, "and not too serious a fall in the bad, mid-1970s market."
For free lists of the names and addresses of no-load and specialty mutual funds, write to the Investment Company Institute, 1775 K St. NW, Washington D.C. 20006.
Many investors seek out big fund organizations that offer a variety of funds under the same roof. You can sell one fund and buy another with a toll-free phone call, paying only a small bookkeeping fee. The leading no-load fund groups are Fidelity Distributors and Scudder Fund Distributors, both in Boston; Stein, Roe and Farnham in Chicago; T. Rowe Price in Baltimore; and Vanguard in Valley Forge, Pa. Value Line in New York has a low, 2.5 percent sales charge.
Only two among the big, no-load "family" funds made Lipper's top 25 over the past 12 months: Stein, Roe and Farnham Capital Opportunities and Row Price New Era. Leaders over the past three months included Rowe Price New Horizon, Value Line Special Situation and Value Line Fund, Steinroe Special and Scudder Development.