Few mutual funds escaped unscarred from gloomy third quarter


NEW YORK -- Yesterday's release of quarterly mutual funds results showed wreckage almost everywhere.

The notable exceptions were modest gains in gold and overseas bond funds, both of which were helped by the falling dollar.

For other funds, however, the heady double-digit gains that had appeared annually, and even quarterly, in recent years, were absent, replaced by double-digit losses.

"There were very few places to hide," said A. Michael Lipper, president of Lipper Analytical Services, a mutual-fund rating agency.

For the third quarter, the average loss for all equity funds was 14.91 percent. Fixed-income funds did well in comparison, losing only 0.81 percent.

Funds showing losses of more than 20 percent encompassed small-growth companies, and companies engaged in environmental services, science and technology, and financial services. Almost as badly battered, with losses approaching 20 percent, were funds invested in real estate and international equities.

The weakness of the quarter was as evident in what did well as in what did poorly. The leading Dreyfus Capital Value Fund, perhaps the most bearish investment available to the public, finished the quarter up 12.96 percent. It registered strong gains throughout a portfolio structured to benefit from disaster.

The fund is run by Comstock Partners, a three-man team that gained renown for well-timed pessimism in 1987 when, immediately before the stock market crash, it mailed clients a letter suggesting that the bull market had ended.

It has since done best when the market has done worst. During the third quarter, said Charles Minter, its vice chairman, the Capital Value Fund was short domestic common stocks, meaning it had sold securities it did not own, but had obtained through borrowings, in the expectation that they could be repurchased in the future for less.

It also held puts -- options to sell a certain stock at a certain price within a specific period of time -- on the Japanese market, which appreciated as the market declined. A quarter of the approximately $730 million in the fund was invested in Australian, New Zealand and Canadian government bonds.

"We believe there is something endemic going on in this country which involves not enough income to service the enormous amount of debt," Mr. Minter said.

His thesis having been recently affirmed by the markets, however, Mr. Minter said the partnership had not grown more skeptical.

Already, it has wrapped up some short positions in the major money center banks, and if the large banks hit another round of new lows, as they did the week before last, he may eliminate all his short positions in these securities, Mr. Minter said.

Even though his pessimism may be bottoming out, however, Mr. Minter is not yet optimistic. During the third quarter, fund managers who were did worst of all. The bottom-ranked (No. 1779) Prudent Speculator Leveraged Fund aggressively invested in small stocks, Mr. Lipper said, using borrowed money to expand the scope of its holdings. It lost 46.63 percent of its value during the quarter and is down about 50 percent for the year.

Rankings of the top and bottom 10 funds for the quarter that ended Sept. 30 for stock and taxable-bond mutual funds, according to Lipper Analytical Securities Corp. The ranking is by percentage growth or loss in total return:

Top 10

1. Dreyfus Capital Value +12.96%

2. Blanchard Precious Metals +11.68%

3. Enterprise Precious Metals +11.30%

4. Fidelity Yen Performance +11.24%

5. First Australia: Pacific Rim +10.82%

6. Fidelity Pound Performance +10.73%

7. Strategic Investments +10.27%

8. USAA Gold +9.34%

9. International Cash Portfolios Hard Currency +9.12%

10. Thomson McKinnon Precious Metals, B


Bottom 10

1. Prudent Speculator: Leveraged


2. Bull & Bear Special Equities 43.75%

3. Security Ultra Fund 41.16%

4. Steadman Oceanographic 39.80%

5. Shearson Lehman Brothers Small Capitalization Fund 37.32%

6. Security Omni 35.50%

7. Alliance Technology 33.21%

8. SteinRoe Capital Opportunities 33.14%

9. Delaware Group: Trend 32.67%

10. Oberweis Emerging Growth 31.91%

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