Monday, January 11, 1999
High-techs bolster local funds
Performance was strong nationally
BY URSULA MILLER
The Cincinnati Enquirer
Cisco Systems. Intel. Microsoft. Lucent Technologies. America Online.
Mutual funds that owned those high-tech names did best in the last three months of 1998 and for the year.
Locally managed funds were no exception.
Of the 47 locally based funds, the best-performing ones counted those stocks among their biggest holdings. Health care companies, such as drug maker Pfizer Inc. and medical devices maker Guidant Corp., also were favorite strong performers in stock fund portfolios.
“The nature of the U.S. economy is changing,” Cern Basher, lead manager for Provident Financial Group's Riverfront Large Company Select Fund, said, explaining why high-tech stocks are favored by investors. “It is going from a manufacturing to technology- and service-based economy, and clearly companies in those industries or that service those industries (stand to) benefit highly.”
Science and technology funds led all investment objectives in the fourth quarter and year, according to fund tracker Lipper Inc.
For the quarter, science and technology funds gained a stunning 41.6 percent. It was the best average quarterly return by any investment objective other than gold-oriented funds since Lipper began tracking fund performance in 1959.
For the year, the sector did even better — returning 51 percent.
Overall, general equity funds increased an average of 20.2 percent in the fourth quarter and 14.5 percent for all of 1998. The quarterly performance was the strongest since the last quarter of 1982 and the third-best quarter for general equity funds since 1959.
Locally managed equity funds lagged their national counterparts for the quarter and year, with Cincinnati-area funds increasing 16.9 percent in value in 1998 and 12.3 percent in the fourth quarter.
Large-company funds handily outperformed small-company funds — 28.1 percent vs. a loss of 0.3 percent. The trend, however, was clearly reversing in the final weeks of the year.
From their low point, Oct. 8, through the end of the year, small-cap funds increased almost 41 percent in value. Mid-cap funds did even better, ris ing 43.1 percent during the same period. By comparison, S&P 500 Index funds returned an average of 28.4 percent between Oct. 8 and year-end.
By far the best-performing fund based in Cincinnati in 1998 was CityFund Advisory's Regional Opportunity Fund. It gained 54.8 percent in value for the year; 34.5 percent in the last three months.
About 65 percent of the fund's holdings are in a variety of companies based in or with significant operations in Ohio, Kentucky and Indiana. A mixture of regional stocks such as Guidant Corp., Gliatech Inc., Abercrombie & Fitch, Firstar Corp., Lexmark International, Kroger, Cintas Corp., Comair Holdings, Kroll-O'Gara and Papa John's International contributed to the fund's exceptional performance.
Its biggest holding, though, was Internet superstar stock America Online. AOL gained 586 percent in 1998.
“Our goal is to beat the S&P,” said Jill Travis, manager of the Regional Opportunity Fund. “If we beat the S&P, we're happy. In a year I can double it, that's wonderful.”
Provident's Large Company Select Fund likewise benefited from technology picks. It tied with Countrywide Investments' Growth/Value Fund for the second-best performances of the year. Both funds gained 39 percent in value in 1998. In the fourth quarter, Countrywide's fund gained 34 percent, and Provident's advanced 32.4 percent in value.
“The playing field has changed so much with technology, not just from a productivity standpoint but from a valuation standpoint for the market,” said Susan Flischel, chief investment officer for equities at Countrywide.
Ms. Flischel said hot technology stocks have stretched the valuations of the market because investors keep bidding up their prices, even though the earnings of many high-tech stocks — especially Internet plays — are small to non-existent in some cases.
“People think they're the place to be,” she said.
Fifth Third's Quality Growth Fund enjoyed the next-strongest quarterly performance among local funds with a gain of 28.1 percent. For the year, the fund increased almost 30 percent in value.
Bartlett & Co.'s Europe Fund also had very strong performance for the year, up almost 42 percent. It gained 23 percent in the final quarter. By comparison, European region funds tracked by Lipper gained 15.4 percent on average for the quarter and 22.6 percent for the year.
Locally managed funds that lagged the most focused on small-cap stocks or real estate.
For the year:
• Star Banc's REIT (real estate investment trust) Plus fund lost 16.7 percent.
• Ohio National's Small Cap Fund lost 13.7 percent.
• Gradison-McDonald's Opportunity Value lost almost 7 percent.
• Carillon Advisers' Capital Fund lost 6.0 percent.
• Gateway Investment Advisers' Small Cap Index Fund dropped 3.4 percent.
“It was somewhat of a difficult year for us, primarily for a couple of factors,” said George Clucas, president and chief executive officer of Carillon Advisers. “Smaller-capitalization stocks, which we have favored, have not performed nearly as well as some larger-capitalization issues. We also have, in that fund, a position in real estate investment trusts, which did not perform well during 1998.”
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