Fund Managers Like Liquidity Of Big Stocks

People who manage other people’s money are finding that bigger stocks are better - for the moment at least.

Since the end of September, the Dow Jones Industrial Average, which boasts companies with an average total market value of $36 billion, has returned 14 percent in dividends and price appreciation.

Meanwhile, companies in the Standard & Poor’s 500 index, whose average market capitalization is $9 billion, returned 10 percent.

The Russell 2000 Index, which boasts shares weighing in with an average market value of $360 million, climbed only 4 percent.

“When you see something like this that is so pronounced, you favor bigger companies rather than smaller ones,” said Geoffrey Brod of Aeltus Investment Management in Hartford, Conn., which has $10 billion invested in stocks.

Large stocks are getting the biggest boost because a record amount of money is coming into the market at the same time that many money managers are beginning to doubt that the stock rally that began in late 1990 can continue.

“People are moving money toward quality and into the most liquid stocks,” said Jim Walline, who manages the $725 million Lutheran Brotherhood Fund.

Money managers’ experience shows that stocks of large companies generally fall less in tumbling markets. In the two months following the October of 1987 stock market crash, for example, the Dow Jones and the S&P 500 each fell about 20 percent while the Russell 2000 fell 25 percent.

Brod’s current picks include drug companies like Johnson & Johnson and Pfizer Inc. “If we have an economic slowdown, their earnings will hold up better than cyclicals,” he said. Brod also owns consumer stocks like Pepsico Inc. and Gillette Co. that also tend to weather a slowdown better than aluminum or paper companies.

The economy has been slowing, from a growth rate of 6.4 percent in the fourth quarter of 1994 to 4.8 percent in the third quarter of 1995.

That slowdown has already crimped corporate earnings. In the fourth quarter of 1995, half the companies in the Dow Jones industry groups beat analysts’ estimates and 36 percent came in below estimates, according to IBES International Inc., a firm that tracks such estimates. A year earlier, 57 percent of the companies beat estimates and 31 percent didn’t.

“We don’t see a recession, but we might come close in the first half of this year,” said Luke Mazur, president of Merus Capital Management in San Francisco.

Mazur has 12.6 percent of his $243 million Highmark Equity Income Fund in oil companies like Atlantic Richfield Co. and Amoco Corp. He also owns consumer stocks like Bristol-Myers Squibb Co., Philip Morris Cos. and Anheuser-Busch Cos.

The manager remains almost fully invested in stocks because he predicts the Federal Reserve will lower the interest rate on overnight loans among banks to 4.5 percent from today’s 5.25 percent. “As long as the Fed is on your side, you don’t fight it,” he said.