On and on the gains of stock funds go. Where they stop nobody knows.
One thing's certain, however: Investing is becoming a trickier and trickier proposition.
"We're in the late stages of a bull market, with smaller, more speculative stocks gaining the attention," warned A. Michael Lipper, president of Lipper Analytical Services, which tracks mutual funds. "Investors must be careful to realize such markets are thin and easily spooked."
As money poured in from low-yielding bank accounts, the average stock mutual fund rose an impressive 5.3 percent in the third quarter, bringing the return for the first three quarters of 1993 to 10 percent.
To understand how investment leadership has changed, consider equities such as Diagnostek, a mail-order pharmacy company whose stock doubled in price to $15 a share; Air Sensors Inc., a developer of engine systems for alternative fuels, which doubled to $10; and Marcum National Gas Services, a maker of compressed natural gas pumps, whose shares tripled to $9.
Such small-company stocks propelled Progressive Series: Aggressive Growth Fund to a 26.65 percent gain in the quarter to lead the pack.
"We're a tiny fund that specializes in small-capitalization companies with new products that help them expand," explained James Lampson, portfolio manager. "Our stocks range from penny stocks to $16 a share."
Meanwhile, INVESCO Strategic: Leisure, up 19.8 percent in the quarter, benefited from media, gaming and specialty retailing stocks. Acclaim Entertainment increased by one-third to $30 a share thanks to its Mortal Kombat video game.
"We're interested in aggressive growth within the most attractive part of the consumer sector," said Tim Miller, portfolio manager. "We're emphasizing smaller-cap stocks, and we see the overall stock market gaining 8 to 10 percent annually over the next three years."
Latin American, science/technology and real estate funds performed best in the quarter.
Top funds in the third quarter, according to Lipper, were:
* Progressive Series: Aggressive Growth Fund, New York; $750,000 in assets; 4 percent "load" (initial sales charge); $1,000 minimum initial investment; up 26.65 percent.
* Ivy Emerging Growth Fund, Boca Raton, Fla.; $8.7 million in assets; 5 percent load; $1,000 minimum; up 21.45 percent.
* Smith Barney Shearson Special Equity Fund, Class A and B, New York; $116 million in total assets; 5 percent load on Class A, 5 percent contingent deferred load on Class B; $1,000 minimum; up 20.5 percent and 20.29 percent, respectively.
* INVESCO Strategic: Leisure, Denver; $285 million in assets; no load; $1,000 minimum; up 19.8 percent.
Gold-mining, Japanese and Pacific region funds were the biggest winners the first nine months. Although volatile gold is up only $30 an ounce compared to the start of the year, gold-mining shares are up 70 percent.
Funds investing in South African gold-mining companies have excelled, though such funds suffered a decline in the third quarter.
"South African mining companies improved operations, made a turnaround and are less of a risk," said Caesar Bryan, portfolio manager of Lexington Strategic Investments Fund, explaining its 166.23 percent gain the first three quarters, with 90 percent of portfolio in South African shares.
According to Victor Flores, portfolio manager of U.S. Gold Shares, up 70.06 percent, instability in Russia helped boost interest in gold.
"Gold should only be a 5 to 10 percent hedge within a portfolio," he said, "but I see excellent prospects as people realize gold's potential and the potential for inflation and other economic concerns."
Top stock funds for the first three quarters were:
* Lexington Strategic Investments Fund, Saddle Brook, N.J.; $48 million in assets; 5.75 percent load; $1,000 minimum; up 166.23 percent.
* U.S. Gold Shares, San Antonio; $265 million in assets; no load; $1,000 minimum; up 70.06 percent.
* Van Eck International Investors, New York; $696 million in assets; 5.75 percent load; $1,000 minimum; up 64.87 percent.
* Excel Midas Gold Shares, San Diego; $7.5 million in assets; 4.5 percent load; $100 minimum; up 64.26 percent.
* Fidelity Select: Precious Metals and Minerals, Boston; $316 million in assets; 3 percent load; $2,500 minimum; up 61.71 percent.