June 7, 1997

Look Beyond The Numbers

Chet Currier Associated Press

As valuable as numbers may be to mutual-fund investors, it’s important to remember that they never tell the whole story.

Plainly, you can’t hope to compare and evaluate funds without studying the statistics that describe their past record and present makeup. The whole objective of fund investing is a mathematical matter of dollars and cents.

But as soon as you start thinking of the figures as precise, objective truths that can be relied on without regard to context or interpretation, you can run into trouble.

For an up-to-date example of this kind of numbers trap, consider some recent research by Olivia Barbee, an associate editor at the monthly newsletter Morningstar Investor in Chicago.

Suppose, Barbee posits, that you want to protect yourself from risk by seeking to put your money in stock funds that perform the most consistently in all kinds of markets.

Barbee picked out stocks using Morningstar’s database, and came up with 21 fund names, from Advantus Horizon to Vance Sanders Exchange.

What would happen, Barbee wondered, if you ran the same performance screen using 12-month periods that ended in July instead of December?

When she did that, Morningstar’s computers gave her back a list of 26 funds, only one of which had appeared on the first list.

That standout case, FPA Paramount Fund in Los Angeles, has done an outstanding job, in Morningstar’s appraisal, but is a bit of an unusual case because it tends to hold a large cash reserve invested in money-market securities.

At last report, it had 70 percent of its assets in stocks and 30 percent in cash. If you balanced other, fully-invested stock funds yourself by putting 30 percent of your investment in money funds, you could expect a good many more of them to pass the no-down-years test.

Beyond that, Barbee says, it’s interesting to note that no other fund that made the cut for the December years qualified using July periods, and vice versa. One fund on the July list, for instance, lost more than 8 percent in the year ended in December 1990.

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