A Tough Year For Fund Investors

It was a year of hard knocks for mutual funds in 1994. Losses were common among both domestic and world funds alike, from the most conservative to the most speculative of investments.

All but a few categories of equity funds showed negative total returns for the year and the fourth quarter, Some might say it was an achievement to make any money.

Japanese funds were one exception, benefiting from a fitful recovery in the Tokyo market. Science and technology funds made out, due to gains in high-tech stocks.

But other categories showed losses, as stock markets around the world were unsettled by rising interest rates as the economic recovery gained momentum. Funds that stood to benefit from any pickup in inflation also had a bad year. Gold funds showed double-digit declines for both the fourth quarter and the year as a whole.

And since both the stock and bond markets struggled in 1994, it didn’t matter much whether your money was in aggressive stock funds or more diversified funds.

International diversification often didn’t provide much benefit either. For example, world income and domestic income funds showed almost identical net declines heading into the final weeks of the year.

Likewise, your chances of winding up in the minus column were pretty much the same whether the fund you chose owned small, medium-sized or large stocks.

The average loss was a little bigger at small company growth funds and “mid-cap” funds than at funds set up around the Standard & Poor’s 500-stock composite index.

But none of those categories came close to matching, the returns on money-market funds, which simply pass through the interest earned on short-term securities such as Treasury bills. Late in the year the average yield on money funds rose past 5 percent, about double a year and a half earlier.