Shelter In Small Stocks

Looking for ports in a storm? Some stock mutual funds with decent long-term records performed quite acceptably during the market swoon of this summer and fall that culminated in Monday’s plunge. But it was almost impossible to find a fund with a good previous record that did well during the four days of terror that ended last Monday.

The standout funds during the swoon were the Evergreen Limited Market fund and the Bridgeway Ultra-Small Company fund. Both invest in very small companies, which weathered the downturn better than most.

The Dow Jones industrial average peaked on Aug. 6 at 8,259.61 and then fell 13.3 percent through the panic-stricken early close on Monday. Small-stock indexes continued to climb after the Dow peaked, however, and ended on Monday about where they were in early August.

Over all, the best-performing mutual fund over that period was a fund that buys small stocks in Britain, the DFA United Kingdom Small Company fund; it went up 14.2 percent.

Alas, it had been down earlier in 1997 and has a mediocre record in recent years. (It was, however, a top performer back in the year that ended Sept. 30, 1987, just before that year’s crash. Maybe this is a fund that should be monitored by those looking for signs of a new crash.)

Energy stocks did well during much of the swoon, which is what allowed Fidelity’s Select Energy Service fund to make the list of top performers. It also has a good long-term record, but alone does not make for a diversified portfolio.

The Evergreen and Bridgeway funds were joined by a newer fund, Franklin Micro Cap Value I, as good performers during the down period. All three invest in very small companies, often with market values of less than $100 million, which Wall Street is likely to ignore.

The other funds that did well - to no one’s surprise - were the bear funds. Rydex Ursa, which has been betting against the bull for a long time, went up 10.75 percent during the period. That did not, however, erase its losses so far in 1997. Lighthouse Growth, which plans to change its name to Lighthouse Contrarian, also did well. It, too, has been shorting a lot of stocks.

“We’ve felt the stock market was getting to be a speculative bubble,” said Kevin Duffy, the fund’s manager. The Lighthouse fund had, however, done little more than break even in 1997 through Aug. 6.