'PLAIN JANE' FUNDS MAY BE BEST MARKET BET
by Mark Scheinbaum
American Reporter Correspondent
Boca Raton, Fla.
BOCA RATON, FLA., Dec. 3, 2002 -- When it comes to long-term mutual fund investing, perhaps it's best for most investors not to try to "reinvent the wheel."
The "wheel" which keeps the markets rolling, in this case, refers to the old "Plain Jane" diversified, investment-grade, common stock mutual funds.
Also in this group of funds which can actually show you a 40, 50, or 60-year track record, are so-called equity-income, balanced, growth and income, and total return funds.
An analysis of the mutual fund industry's recent performance in the Dec. 2 edition of The Wall Street Journal, confirms my longtime uneasiness with "index," "sector," and other niche funds which attempt to recreate the truly amazing long-term success of the Plain Janes.
Most of the major fund groups: Fidelity, Delaware, Putnam, Oppenheimer, Vanguard (Wellington), Invesco, etc have an "original" fund which might date back to before World War II.
The purpose was not to duplicate an index such as the Dow or the S&P 500, but to take the peaks and valleys out of the market's volatility, and outperform any specific sector, year after year.
Thus, in the Great Depression Fund X might have held 12 percent in retail and 15 percent in mining and natural resources; after Pearl Harbor perhaps they might have underweighted retail to 9 percent, but increased raw materials to 22 percent. Get the idea? Professional managers chose the "sectors" instead of teachers, truck drivers, retirees, and day-traders trying to play at asset allocation.
According to Lipper, cited by the Journal, if you dumped your money into the Vanguard 500 Index Fund a year ago, you lost 19.31 percent. You might say a -19 percent return in a year in which Fidelity Magellan was down 21 percent isn't that bad.
But is -21 percent vs, -19 percent your only choice?
Vanguard's Wellington Fund, an old "Plain Jane" fund was down only 6.86 percent year-to-date. More importantly, even with the last three miserable years, the Wellington total return for the past five years was +5.05 percent.
Not only is this double the CD rates, and quadruple money market rates, but it's worth much more to you if you used a clone of this portfolio offered in many Flexible Premium Tax-Deferred Variable Annuities, even after all mortality fees are deducted.
Vanguard 500 Index, by contrast, average +0.52 percent for each of the past five years.
American Funds Growth was also down for the year thus far, -18.01 per cent, but not only is it positioned for a rebound, but if you are a long-term investor, your results here for the last five years are still +8.73. It is notable that in a broad market rally, this fund was +4.12 percent in November, while the Vanguard 500 was +3.26 percent.
If a pure "growth" fund still has some high flyers which you are uncomfortable with, look at a fund such as Delaware Decatur Equity Income which is down 13 percent for the year, but still showing a 10-year return of +8.2 percent per year. Obviously, three straight down years hurts the statistical averages for many funds, but most conservative investors nowadays will be pleased with 8 percent results on average.
Finally, as a group, large cap stock funds and mid-cap stock funds were up 3.93 percent and 7.59 percent per year, respectively, for the past five years.
Over the same half decade, Dow Jones growth stocks were -4.78 percent per year; Dow Jones value stocks +2.05 percent per year, and the entire S&P 500 Index +0.54 percent per year. Total Return type "Plain Jane" funds were +2.28 percent per year for the five years, not great, but about five times better than the S&P Index.
Mark Scheinbaum is a former UPI newsman and chief investment strategist for Kaplan & Co., BSE, NASD, SIPC. He or his firm may have an interest in securities mentioned in this article.