Enjoying the Revolt

Mutual funds are being shaken by an investor revolt. In seven of the past 13 months, the sale of new fund shares to the public has slipped behind redemptions, and the trend is accelerating. In April the excess of redemptions over purchases rose to $250 million, up from the record $194 million in March. Investors are cashing in their shares partly because the funds performed poorly in 1969 and 1970, though they did better than the market averages last year. However, some funds have been able to prosper in the face of the industry depression.

Rowe Price

Isolated in downtown Baltimore, 187 miles from Wall Street, T. Rowe Price & Associates is taking in more money than it can handle. The firm manages the best-performing U.S. mutual fund. According to the Wiesenberger Services, the industry's leading chronicler, the Rowe Price New Horizons Fund increased the net asset value of each of its shares by 287% in the past decade. To the individual investors, that means an investment of $2,500 in 1962 would today be worth $9,675. As a result, the fund has been receiving as much as $1.3 million a day in new investment money, even though last year it upped the minimum-share purchase from $2,500 to $25,000. Unable to put the money to work in the stock market fast enough, T. Rowe Price closed the fund to new investments in March.

The firm was started in 1937 by Thomas Rowe Price, now 74 and retired, as an investment-counseling outfit. It was not until 1950 that Price started his first mutual fund, the T. Rowe Price Growth Stock Fund. It was the industry's best performer in the 1950s and still ranks high among large growth funds. Price has one other fund in his fold, the Rowe Price New Era, started in 1969. All of Price's funds are "no loads," meaning that the funds have no salesmen and the buyer does not pay a sales commission. Price's funds have won such a reputation as sound investments that last year their combined net sales amounted to $214 million, an amazing 54% of all mutual-fund net sales--even though their assets of $1.5 billion were a mere 2.8% of the industry total.

Charles Shaeffer, 61, is now the president of T. Rowe Price and owns about 20% of its stock; the rest is owned by other employees. Shaeffer, a gray-haired, athletic man, joined the company shortly after it was formed and still follows its founder's philosophy: invest in a stock for at least three to five years, but only if the company's profits are growing faster than the rate of inflation. Some years back Thomas Rowe Price rather conservatively defined a growth company as one whose earnings and dividends double every ten years. Shaeffer carefully avoids cyclical stocks like aerospace companies and concentrates on stocks in consumer goods and services (Levitz, Kresge and Levi Strauss), natural resources (Lubrizol, Weyerhaeuser, Standard Oil of Indiana and Georgia-Pacific), and science and technology (Electronic Data Systems, IBM and Xerox).

Dreyfus Offshore Trust

Four years ago, it seemed impossible that Madelon Talley could climb to the top in mutual funds. She had no college degree and had worked only briefly as an ad-agency receptionist before becoming a Manhattan housewife and the mother of three children. Landing a job was no problem. She and her husband, a trade-book publisher, were friends of Dreyfus Corp. Chairman Howard Stein. But that friendship--and some courses in economics at Columbia --got her a job only as a $6,000-a-year statistician. It was enough to give her a chance to show that she had a canny way of sizing up stocks. Now after spending three years co-managing the Dreyfus Leverage Fund, Talley, at 40, has become the first woman to run a mutual fund. Last month she was named executive vice president of the Dreyfus Offshore Trust and given the prime responsibility for investing its money (Stein is president of Dreyfus Offshore).

The fund is one of many set up in recent years to attract foreign investors. Like the other offshore funds, the Dreyfus trust does not deal with U.S. citizens. Instead, it solicits funds, primarily in Western Europe, and then invests the money in U.S. and British shares. Though the fund was started in the spring of 1969, just before the stock market tumbled into a deep depression, its assets have increased 43%, to $55 million.

In making investment decisions, Talley goes far beyond detailed statistical analysis. She interviews company executives to "get a feeling for the management," sometimes called woman's intuition. She was among the first analysts to recommend Bausch & Lomb and MGIC Investment Corp. before their rises. Talley is now investing mostly in small companies with special kinds of markets because their profit growth is not monitored by Phase II regulators, and they often have no real competition.

Talley believes that women are particularly acute at picking stocks, partly because "women are always looking for a new product." One company brought out a new kind of rice; Talley immediately bought a package and cooked it in her Park Ave. apartment. She took a fancy to the rice--and the company's stock.

But running the mutual funds is not Price's biggest business. The firm manages almost twice as much money --about $3 billion--in private portfolios. Until recently these belonged to individuals rich enough to make a $1,000,000 minimum investment, or to the pension funds of such corporations as American Cyanamid, Bristol-Myers, Duke Power and Ford Motor. Now

Price is also attracting portfolio money from somewhat less wealthy executives. Shaeffer has started a new service to handle portfolio accounts as small as $100,000.

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