The first nagging investment question of 1995 was recently answered:
Fed Chairman Alan Greenspan ended speculation by cutting interest rates a bit. Financial markets responded enthusiastically the quarter-of-a-percent decline and await further downward movement.
Attention now turns to the second nagging investment question of 1995:
How high will the boom in technology stocks go before it could conceivably crash and burn, dragging the stock market and mutual funds down with it?
Funds specializing in technology and science gained an average of 28 percent the first half of this year, according to Lipper Analytical Services. That's the best performance of any group, besting second-place Standard & Poor's 500 index funds at 20 percent and financial services funds at 19 percent.
Tech outstripped the impressive 17 percent gain of the average equity fund, the best first half since 1991. Many funds not under the technology heading, such as Fidelity Magellan, added substantial tech holdings.
"The technology industry is extremely sensitive to prices, and introduction of new products usually means price pressure will accelerate and earnings could decline," warned A. Michael Lipper, president of Lipper Analytical.
"We think a technology decline is coming, even though it's difficult to pinpoint the time, and I wouldn't be a new buyer of technology."
Those who didn't heed such logic prospered and are still enthusiastic. Top performer Fidelity Select Electronics Fund profited from semiconductor stocks Intel Corp., Micron Technology, Applied Materials and Texas Instruments.
"A lot of people were calling me at the beginning of the year, telling me I should be selling stocks because summer was coming and at some point there'd be a correction," recalls Marc Kaufman, portfolio manager of Fidelity Select Electronics, up 60.95 percent the first six months of the year.
When you have a group likely to increase earnings rapidly, Mr. Kaufman reasons, you shouldn't trade but instead should stick with the best-positioned companies.
Stocks of S3 Inc., Tencor Instruments, Altera Corp., LSI Logic and Micro Linear boosted the Seligman Communications & Information Fund.
"If you have a 10-year time horizon for saving for retirement or for children's educations, have the bulk of your assets in technology and small-cap stocks," advised Paul Wick, manager of that fund, whose Class A shares jumped 48.02 percent.
Diversified funds also embraced tech. Alger Capital Appreciation Fund put 67 percent of portfolio in stocks such as Xilinx Inc., Opal, DSC Communications, FSI International and Motorola Inc.
"Though I'm not going to predict short-term price movements and we'll undoubtedly have corrections from time to time, fundamentals for the technology sector are bright," asserted Shelton Swei, co-manager of that fund, up 45.36 percent.
Fundamentals support higher prices and unless you can forecast corrections -- which you generally can't -- ride them out and accumulate more stock, said Mr. Swei. Despite growing anti-tech sentiment, it's hard to argue with this year's results.
Top stock funds the first half of 1995, according to Lipper, were:
* Fidelity Select Electronics Fund, Boston; $922 million in assets; percent "load" (initial sales charge); up 60.95 percent.
* Seligman Communications & Information Fund, Class A, New York; $1.6 billion; 4.75 percent load, but recently closed to new investors; up 48.02 percent.
* Fidelity Select Air Transportation Fund, Boston; $141 million; 3 percent load; up 47.55 percent.
* Alger Capital Appreciation Fund, New York; $6.1 million; redemption fee declining over six years; up 45.36 percent.
* Reserve Informed Investors Fund, New York; $8.2 million; 4 percent load; up 43.32 percent.