4 flaws to avoid, and 5 funds that have starred


WHAT mutual fund pitfalls should you avoid? American Funds Investor lists:

Drain of high expenses. ("Many investors scowl when they read their fund's annual report and find expenses growing rapidly.")

High stock turnover. ("This is another nasty surprise; heavy trading raises brokers' fees and hikes capital gains taxes.")

Risk of "star" manager resigning. ("Too many mutual fund managers are switching jobs; it's rough when your fund's manager -- the reason you invested there -- has fled to another fund.")

Uncertainty of inexperienced manager. ("Investors are unsettled when they discover their fund manager never suffered through a 'down' market.")

These mutual funds were the top five performers, in order, over the last five years, according to Hulbert Financial Digest, with five-year annual total return percent in parentheses: Pure Fundamentalist (38.4), OTC Insight (36.3), Prudent Speculator (26.5), Timer Digest (24.1), MPT Review (23.4).

WALL STREET WATCH: "I'm extremely bullish on stock market fundamentals. Conditions are perfect for U.S. investors. Inflation is low, the budget deficit eliminated and corporate profits are solid." (Edward Kerschner, PaineWebber Inc.)

"If indicators continue to point to tighter conditions, the Fed will raise rates at least once more -- most likely at its Nov. 16 meeting." ("Argus Weekly Report" in Barron's)

"If the Fed does raise rates, on Nov. 16, that will be 'it' for a while because the economy will continue to ease until the Fed is forced to turn it around." (Henry Blackstock, Southtrust Bank)

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