The Rise of No-Loads

Quick business quiz: how does a group of companies sell its product if it has no salesmen? Answer: by making that fact a virtue--indeed, the main merchandising point.

Whatever marketing professors might think of that reply, it describes the strategy of the little known "no-load" mutual funds. Four years ago, there were 65 no-load funds. Now there are 160 with 1.4 million shareholder accounts, a fourfold increase. Last year, when mutual funds as a whole suffered an excess of redemptions over sales, the no-loads went on registering increases in net sales.

Like other mutual funds, the no-loads pool cash from small investors into a big kitty and invest it in stocks. The distinction is that they dispense not only with expensive salesmen but with the "load," or sales commission, that regular mutual funds charge; such loads usually run about $8.50 for each $100 invested. By contrast, a no-load fund charges only a management fee of 50-c- per $100 or less. The no-loads depend upon newspaper ads that invite potential investors to write or telephone for a prospectus, plus word-of-mouth recommendations.

The older and larger no-load funds were formed mostly by investment counselors as a handy way of attracting investors whose accounts were too small to merit individual attention. T. Rowe Price Associates of Baltimore, an investment counselor, owns the biggest no-load fund, T. Rowe Price Growth Stock Fund, and two other large ones, Rowe Price New Horizon and Rowe Price New Era. The assets of these three funds account for 26% of the entire no-load industry's assets of $5.8 billion. Recently, some of Wall Street's investment houses have also been setting up no-load funds to offer an additional, inexpensive investment option to clients. Two examples are Merrill Lynch's Edie Special Growth Fund and Burnham and Co.'s Burnham Fund.

Top Three. The no-load funds do a good investing job. Last year three no-load funds ranked one-two-three in growth among all the 526 funds rated by Manhattan's Arthur Lipper Corp. Another four no-load funds were in the top 15. Growth Fund Research Inc., a San Clemente, Calif., research firm, figures that $10,000 invested in an average no-load fund in 1949 would have grown to $96,246 by the end of 1970, assuming reinvestment of all capital gains and dividends. The same amount of money invested in an average loaded fund would have grown to $70,502.

Part of the difference is that more of the no-load investor's dollar is actually used to buy stock because no sales commission is lopped off when a buy order is placed. No-loads may also perform well because many are small and must thus concentrate their investments in relatively few stocks, which can be advantageous if those issues are the big gainers. Sometimes the managers of the no-loads are freer to concentrate on picking the right stocks. Managers of loaded funds often have to spend much of their time simply planning sales strategy.

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