Always consider family values when investing in mutual funds.
Each family of funds is unique, with its own strengths and weaknesses worth noting by average investors. Don't dismiss all philosophies or returns as the same, or you'll end up paying a big price.Some examples of differing strategies and results:
- The general equity funds of giant Fidelity Investments, which spends an enormous amount of money on stock research and attracting a talent pool, receive a strong 2.1 performance rating (on a scale in which 1 is highest and 5 the worst) from the Value Line Mutual Fund Survey. That's the best overall score for returns of any fund group.
- Vanguard Group, a champion of index funds and a firm that also farms out the management of a number of its funds, boasts the lowest expenses of any fund family. That translates to an excellent 2.9 performance rating for its bond funds, which benefit greatly from low transaction costs. However, its equity funds received only a 3.4 score from Value Line.
- Capital Research & Management, a well-regarded load (initial sales charge) fund family that employs multiple portfolio managers on each fund to reduce volatility and offers no specialized stock funds. While that differs from other families, it suits the conservative long-term investment approach used by the financial planners and brokers who sell its funds. Performance of its equity funds is rated at 3.0.
- Templeton, which has specialized in global investing since 1954, garners an impressive 1.9 performance rating for its international equity funds. It obviously knows its area of expertise.
"The way that a fund family goes about its business makes a remarkable difference in results," explained Stephen Savage, editor of the Value Line Mutual Fund Survey, which includes a twice-yearly supplement that analyzes the 100 leading families.
"For example, there have been management changes at Fidelity Magellan since Peter Lynch resigned, but successors Morris Smith and Jeff Vinik have also done well because Fidelity's large talent pool allows it to always select the best managers for its top funds."
Among other well-known families, stock funds of T. Rowe Price receive a 2.9 performance ranking (again, 1 is highest and 5 the worst) from Value Line, IDS Mutual Fund Group a 2.9 rating, Putnam a 3.0, Scudder a 3.1, Federated Investors a 3.3, Franklin Group a 3.3, Janus Group a 3.3, Twentieth Century a 3.3, Prudential a 3.5, Merrill Lynch a 3.6, Smith Barney Shearson a 3.6, Dreyfus a 3.7, Dean Witter a 3.9 and Kemper a 3.9.
The universe of all general equity funds represented a 3.5 performance rating from Value Line.
"You can do fine if you invest within one fund family, but find out its strengths and weaknesses so that you won't be disappointed if you realize it doesn't have all you need," counseled Savage. "If you really want the very best returns, you'll likely have to choose funds from several different families."
Although the Value Line Investment Survey has long been a respected resource for stock investors, the Value Line Mutual Fund Survey is just six months old and taking on some entrenched competitors in the booming mutual fund field.
Lipper Analytical Services caters primarily to large institutional clients; CDA/Wiesenberger does that, and also adds brokers and planners; and popular Morningstar Inc. (the new service's most direct competitor) takes careful aim at individual investors, as well as brokers and planners. All three companies offer print and electronic materials, while the Value Line Mutual Fund Survey for the time being has only print.
An annual subscription costs $295 for the Value Line Mutual Fund Survey, 220 E. 42nd St., New York, NY 10017. With separate equity and fixed-income binders updated regularly, the service covers 1,500 funds in full-page form, with another 500 smaller or newer funds presented four-to-a-page.