How the Funds Fared

To skeptical Wall Streeters, the impressive growth achieved by mutual funds during the postwar era was always flawed by the fact that in the Great Bull Market of the 1950s it supposedly took real talent to lose money. Not until this year's seven-month market drop, climaxed by the Blue Monday crash, did the fund managers really get a chance to demonstrate how well they could perform in a shift from a major bull market to a major bear market.

How did the funds fare? In general, just soso. Taken as a whole, the nation's 200-odd mutual funds went into 1962 with $23 billion in assets, and by the end of last week were down to $19.1 billion. Their overall drop of 17.3% was less than the 21% decline of the Dow-Jones industrial average in the same period, but was no better than the performance achieved by many a well-informed individual investor.

A Matter of Mix. Just as some individual investors did better than others in the crash, so did some funds. Best performers were the ultraconservative funds that attempt to ensure a steady dividend income by concentrating their holdings in bonds and high-yield stocks. Thus Boston's Incorporated Income Fund fell only 9.4%, and the K-1 fund operated by the Keystone Custodian Fund dropped only 8.2%.

The balanced funds that try to strike a happy medium between income and growth also showed up considerably better on the whole than the Dow-Jones average. Assets of Investors Mutual, the world's largest fund, which is managed by Minneapolis' Investors Diversified Services, were cut onlv 11.3% by the crash. Explains Mrs. Ruth Axe. president of New York's Axe-Houghton Funds, whose balanced Fund A is off only 14.8% : "We had stocks of better earnings ratios which were less vulnerable."

Predictably, the most vulnerable of the funds proved to be those specializing in growth stocks. The growth fund of Massachusetts Investors Trust was toppled 26.6%, Keystone's S-4 fund 31%, and I.D.S.'s Investors Stock Fund 23.7%. Funds that bet everything on one or two industries also came off more poorly than the Dow-Jones average. Boston's Century Shares Trust, which grew faster last year than any other mutual fund by concentrating on insurance and bank stocks, dropped 23.2%. Chemical Fund was off 25.7%, Energy Fund 25.7%, Atomic Physics & Science Fund 26.8%, and Electronics Investment Corp. 32.8%.

Grass Roots People. So far, the shock waves of Blue Monday do not seem to have significantly weakened investor confidence in mutual funds. Though total mutual fund sales dropped from $292 million in May to $219 million in June, redemptions of fund shares fell during the same period from $121 million to $107 million.

One reason for this, suggests Investors Diversified Services Vice President Donald E. Meads, is that the principal customers of the funds are "grass roots people. They don't have ticker tapes running through their living rooms, so they are less likely to get swept up in panic." And George Whitney, a trustee of Massachusetts Investors Trust, believes that in the long run Blue Monday may have the same effect on the funds as the 1937 downturn --which produced a 13% sales gain for M.I.T. If nothing else, however, the post-crash performance of the mutuals should serve as a reminder to investors that a careful study of the track record is just as necessary in buying fund shares as in buying common stocks.

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