Some people compare them to research scientists, others to riverboat gamblers.
But in fact, mutual fund managers are a lot like the judges of a beauty contest, picking the stocks they think are Most Attractive and Most Likely to Succeed.
If an award were given for Miss Popularity, the winner right now would be (the envelope, please) General Electric. That's the stock that shows up in the most portfolios of general stock funds, according to Morningstar Inc., which found GE in almost 30 percent of such funds.
No upset there. After all, investors have made GE the most valuable company in the stock market, based on market capitalization, which is the stock price multiplied by the number of shares outstanding.
The company's management is widely admired, and sales have been growing in most units, from financial services to the NBC television network.
GE posted record profits in 1994, and the stock, after falling for most of last year, has rebounded.
But it might come as a bit of a shock to find Philip Morris among the most loved stocks.
Sure, the company is big, and it was a darling of the 1980s, when investors went in for companies that seemed to be able to raise product prices ad infinitum.
But when it appeared there was a limit to the amount consumers would pay, even for cigarettes, Philip Morris's stock tumbled. Earnings peaked in 1992 and so did the stock price.
Once the company's stock became a relatively cheap treat, all kinds of fund managers rediscovered Philip Morris, making it now No. 2 on the roster of most owned stocks, with 300 fund owners. (The Morningstar study excluded funds that mimic an index or that specialize in a narrow area.)
A problem for investors who want to look at portfolio data is that funds are slow to release them, and they quickly become out of date.
For that reason, Richard Walsman, a financial adviser with Sherrill & Hutchins in Atlanta, said he cares more about finding a good manager than about which stocks they own, although he has been known to sell funds that invest too heavily in one area.
Nevertheless, knowing which stocks are most popular at the moment can give fund investors important clues about their own portfolios. Clearly, investors who are leery of owning stakes in companies that promote tobacco may want to take another look at their funds' holdings, which are listed in their annual and semiannual reports.
More broadly, you can compare your funds' holdings with the current favorites to figure out if you are investing with the thundering herd or putting your money off the beaten track. If you are just starting to build a portfolio, you might like staying with the crowd; if you are trying to juice up your portfolio's performance, you might prefer a fund that looks further afield.
And financial planners warn against owning too many funds that own the same stocks. "Obviously, one could wind up, inadvertently and unknowingly, heavily weighted in one sector, which would violate the whole principle mutual funds operate on: diversification," said Charles Cain, president of Cain Asset Management, which manages money for individuals.
bTC You can also see what band wagons fund managers have jumped on -- and decide whether to climb aboard. For example, the managers' favorites right now are heavy on technology and telecommunications; aside from GE, funds have heavy holdings of Intel, the computer-chip giant; Motorola, which makes semiconductors and cellular phones, and AT&T;, the original communications conglomerate.
For the most part, those bets have paid off, since technology stocks, particularly of the semiconductor companies, have soared in the last year. But before you go out and buy the Super Whiz-Bang High-Tech Totally Telecom Fund, remember that you may already own plenty of technology stocks through your diversified mutual funds -- and that fund managers might be better able than you to pick promising sectors.
The same thing holds true for funds that buy foreign stocks. The falling dollar and the climbing yen may make Japan look like a good place to invest. But you may already be invested there, because Tokyo is home to three of the five stocks ubiquitous in international funds, Morningstar found.
The three are Sony, which if it didn't make your television probably produced your Walkman or the music it emits; Hitachi, which makes computer chips and electronic equipment, and Canon, which makes everything from cameras to copiers.
Last year, these stocks could have made you a lot of money, as the Tokyo market rose and the dollar fell, making those gains worth even more to Americans. This year, even the falling dollar has not been able to overcome losses in Japanese stocks.