Getting Comfortable

The $29 billion mutual-investment-fund industry, a glamorous financial phenomenon of the '50s, fell into a long slump after the 1962 stock market dive. Now mutual funds are finally regaining popularity with the investing public.

Last week the Investment Company Institute predicted that fund sales, after setting records for five months in a row, will climb 32% this year to an all-time record of $3.25 billion--10% above the old peak set in the 1961 bull stock market. The dollar volume of shares cashed in by investors has dropped from 61% of sales last year to 52% since June, indicating that the public is once again beginning to view the funds with favor.

No Riches. How good is an investment in the funds? While the Dow-Jones industrial stock average climbed 20.7% from January of 1962 to the end of September this year, half of 20 leading diversified common-stock funds did better; five did about the same as the Dow-Jones, five worse.

Over the year ended last September (the latest yardstick used by Manhattan's Arthur Wiesenberger & Co., the industry's Boswell), Penn Square Mutual shot up 29% v. a 19% rise in the Dow-Jones industrials, Fidelity Trend rose 27% , and the $744 million Dreyfus Fund, whose symbolic lion gives its sales promotion a distinctive flair, climbed 23% . Among the big funds that emphasize a mixture of growth and in come, United Accumulative Fund rose 17% and Affiliated Fund 16%. Massachusetts Investors Trust, the nation's oldest and second largest ($2.1 billion assets), made a 15% gain. But most funds gained closer to 12%, and some, like the $1.8 billion Wellington Fund (up 9% ), lagged well behind the leaders.

Despite healthy rises, few of the more than 300 U.S. mutual funds promise to beat the stock averages. Says Vice President William B. Boscow of Investors Diversified Services, whose Investors Mutual Fund is the nation's largest ($2.6 billion): "We're not trying to make people rich. We're trying to make them comfortable." Mutual Fund managers point out that automakers and oil firms account for most of this year's gain in the Dow-Jones industrials, and that many stocks in the average were selling last week at prices uncomfortably close to their 1964 lows: Allied Chemical at 52 1/2 v. a 1964 low of 51 1/8, Alcoa at 59 7/8 v. 59 1/2, American Can at 42 1/2 v. 40 5/8, A.T. & T. at 66 7/8 v. 65 3/8 Woolworth at 28 v. 27. Two key stocks hit new 1964 lows last week: U.S. Steel at 50 7/8 and General Foods at 78 1/4.

Lower Commissions? As the fund industry recovers, of course, the competition sharpens. Lehman Brothers' besieged One William Street Fund, whose redemptions ran $9 for every $1 of sales in the first half of this year, recently became the first big fund to give up the controversial "front-end load" on its contractual plans--under which Lehman deducted an 8 1/4% commission on the entire contract before investing its customers' money. Sears, Roebuck plans to enter the field on a nationwide scale in about 18 months, and insurance companies hope to grab some of the market with variable annuity plans. Many fund managers expect this new activity to produce pressure for lower sales commissions (now typically 6-8 1/2%), but many also welcome the competition. It could, as they see it, spread mutual funds into new areas, notably small towns, where the idea has not yet had much impact.

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