Biotech, Market Index Funds Were Top Performers In 1995 In Stellar Year, Average Return For Stock Funds Was More Than 31 Percent

Biotechnology and market index funds turned in standout performances as mutual funds investing in stocks enjoyed one of their best years ever in 1995.

The average return achieved by more than 1,900 diversified U.S. stock funds last year came to 31.11 percent, the research firm of Lipper Analytical Services Inc. reported Wednesday.

That was the best showing since a 36.54 percent gain in 1991, and the fifth largest in industry statistics kept by Lipper dating back to 1959.

The funds’ strong showing came as the stock market climbed repeatedly to record highs and bonds also rallied sharply, reflecting a decline in interest rates and inflation.

“There was significant economic and political progress combined with above average earnings” in corporate America, said Michael Lipper, Lipper Analytical’s president.

But in the waning stages of the year, Lipper noted, investors moved some money out of the high-flying technology stocks and into blue chips. Science and technology funds, which gained better than 37 percent for all of 1995, suffered a loss of more than 6.5 percent in the fourth quarter.

“Investors were prudent to shift to more conservative investments, because there’s a significant chance for a downturn after such strong performance,” Lipper said.

Among specialized fund groups, health and biotech funds were the surprise star of the year, riding a spectacular 11.45 percent fourthquarter advance to a full-year return, including reinvested dividends, of 46.35 percent.

With that stretch run, the biotech funds surpassed the science and technology group, and financial services funds, which finished with a 41.45 percent gain for the year.

Among the broader categories of diversified stock funds, index funds modeled on Standard & Poor’s 500-stock composite index set the pace with a 38.84 percent return.

Mid-cap funds specializing in medium-sized stocks returned 32.26 percent; small-company growth funds 31.54 percent, and standard growth funds, which typically own larger growth stocks, 30.79 percent.

For the second straight year, international and global stock funds failed to keep pace with their domestic competition. Lipper’s average of just under 300 international funds posted a 9.35 percent gain for the year.

The worst laggards among the foreign funds were Latin American funds, which fell 20.56 percent for the year.

Hopes for a comeback from those negative results stirred in the first couple of days of 1996 with a sharp rally in the Mexican stock market. But it remained to be seen whether the trend had been reversed.

Precious-metals funds, meanwhile, had a sluggish year as signs accumulated of low and still-declining inflation. After declining 4.01 percent in the fourth quarter, Lipper’s average of 47 gold funds completed the year with just a 1.76 percent gain.

But the good inflation news, along with the year’s numerous other positive financial developments, left the great majority of fund owners with happy memories.

As Jim Griffin, an analyst at Aeltus Investment Management in Hartford, Conn., put it, “Farewell, 1995, we don’t expect to see your like again soon.”