Mutual Funds Scored Again In 1997 Despite Weakness During Fourth Quarter

Despite a rocky fourth quarter, stock mutual funds racked up a strong showing for the third consecutive year in 1997.

The research firm of Lipper Analytical Services Inc. reported Monday that general equity funds, after an average decline of 1.54 percent in the October-December quarter, still finished the year with a gain of 24.36 percent.

Over the last three years, the average equity fund has doubled by posting an average annual return of 25 percent. Lipper labeled that performance as “extraordinary.”

“A primary lesson of 1997 was that prior outsized gains do not preordain lower returns,” said Michael Lipper, Lipper Analytical’s president. “We have learned that such gains in and of themselves should not be the cause for increased caution or revision of asset allocation plans for long-term investors.”

But while many stock funds continued to prosper, some specialized groups suffered under the influence of the Asian financial crisis and slumping gold prices.

Lipper’s average of world equity funds took an 11.41 percent drop in the fourth quarter to finish 1997 with a skimpy 0.42 percent net gain. Some averages of various fund categories concentrating in the Pacific and Far East posted quarterly losses of 20 percent or more to close out the year with net declines of as much as 35 percent.

But the worst shellacking of all occurred in gold-oriented funds, down 30.19 percent for the quarter and 42.02 percent for the year, as inflationary expectations fell and the price of gold tumbled in world markets.

Over the last 15 years, according to Lipper’s calculations, gold funds have recorded an average annual return of minus 1.63 percent.

Among broadly diversified U.S. stock funds, managed funds of all types struggled again in 1997 to keep up with the Standard & Poor’s 500-stock composite index, and with index funds set up to duplicate the performance of the S&P 500.

Those index funds, up 32.60 percent, outpaced the average general equity funds by more than eight percentage points.

Lipper Analytical noted in its yearend report that sales and earnings growth was greater, on balance, for compa nies owned by growth and small-stock funds than for the companies that make up the S&P 500.

But the firm said the big-name stocks in the 500 appeared to be enjoying greater demand because of their “liquidity,” or the ease of buying and owning big positions in their shares that results from the blue-chip companies’ size and eminent standing.

“Liquidity appears to be worth more than growth in these institutionally dominated markets,” the analysis concluded.

Among sector funds focusing on specialized areas of the stock market, utility funds were the big winner in the fourth quarter, jumping 10.87 percent in response to falling interest rates.

But financial services funds were far and away the best performing group for the year as a whole, up 45.23 percent. Stocks of companies in financial businesses have been standout performers all through the Wall Street bull market that traces its origins back to the early 1980s.