Tortoise that people ride to retirement


It has been this kind of a year: $45 billion in new net cash flow into the hot aggressive-growth funds, and about $44 billion in their distant cousins, growth-and-income funds.

It's not that the slow and steady growth-and-income funds are catching up to their speedier and much more volatile cousins. They are already so far ahead in the race for investors' cash that they will remain out front, despite falling slightly behind this year.

Lipper Analytical Services estimates there is about $320 billion in 572 growth-and-income funds, which are what their names imply: funds that invest for both growth (of stock price) and income (from dividends). The very hot small-company funds plus the various technology funds -- biotech, high-tech, science and tech -- together have only about 35 percent as much money. While they may have hotter performance at any given time, they also are subject to much more volatility.

And a lot of investors shy away from the volatile, including people who set up 401(k)s and other plans. The most popular type of funds in 401(k) plans are growth-and-income funds, which are in 56 percent of the plans. Given all the investment choices in plans, growth and income accounts for about 10 percent of all the money, according to Access Research, a New Windsor, Conn., pension consulting and research firm.

Why do investors like the G&I; funds? "It is like putting your toe in the water without fear," said John Markese, president of the American Association of Individual Investors in Chicago. "The income component essentially stabilizes the funds. There is growth potential plus the potential compounding of the income."

Markese said the performance of these funds might not be as high as others because the investments that yield the most income -- utilities, banks, insurance companies, some industrials are cyclical.

"We have seen investors getting more conservative as the market got more volatile," said Fidelity Investments spokeswoman Robyn Tice. "Moving forward, we think there will be more swings in the markets, so we expect more investment in the growth-and-income funds."

Right now, Tice said, Fidelity's growth-and-income fund, with about $20 billion, was the family's second best selling fund behind the Contra growth fund.

Two of the larger growth-and-income funds are Vanguard's Windsor and Windsor II at $15 billion and $14 billion each in assets under management. The funds are popular, said Vanguard principal Brian Mattes, because they are not speculative. "If the market trends downward, you are cushioned by the dividends, and high-dividend stocks tend to fall less and ++ recover more quickly."

In addition to the general classification of growth-and-income funds, both Mattes and Markese regard Standard & Poor's 500 (( index funds as essentially the same as growth-and-income funds. The largest of those is Vanguard 500 Index fund, which has almost doubled in the past year to about $26 billion.

Added together, the growth-and-income and the index categories have $360 billion, more money in fewer funds (about 620) than the leading fund category, growth funds. The 737 growth funds have about $350 billion in them, but $50 billion of that is in one fund, Fidelity's Magellan. To be fair, Vanguard's two 500-index funds, the institutional and the retail accounts, pTC dominate the index category, holding $32 billion of the $49 billion in the index category.

Not that growth-and-income funds are small. They have larger average assets than growth funds, and two of them are huge: American Funds' Investment Company of America, at $28 billion the second-largest equity fund, and Washington Mutual, at $21 billion. In fact, the top 10 percent of growth-and-income funds have almost 80 percent of the money in the category. For many people, growth-and-income funds seem to be the tortoise they hope to ride to retirement.

Pub Date: 10/13/96

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad