Mutual Funds
Funds older than you
September 2, 1999: 5:05 p.m. ET

Hundreds of mutual funds have been around as early as the 1930s
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - Fund manager John Gunn likes to joke that if you stay in his business long enough you wind up sitting in a corner somewhere, stewing about how the market is too expensive.
     But for funds that have been around the longest, it's not that far from the truth.
     "People are paying higher and higher premiums on stocks," said Gunn, part of the management team of the 68-year-old Dodge & Cox Balanced Fund. "It's like driving down a coast highway in a convertible and people are drinking and driving faster as the fog comes in and night descends and the road is getting curvier and curvier."
     In a world where 5.2 million people are trading online, where the latest technology fund can deliver triple-digit profits, many of the oldest mutual funds are surviving by using the most conservative approaches.
     The $6 trillion mutual-fund industry didn't take off until the 1980s. But nearly 1,000 funds exist today that launched between 1924 and 1979, according to Chicago fund-tracker Morningstar.

     The list of senior citizen funds includes the first ones introduced by giants Fidelity Investments and Vanguard Group. Fidelity Fund is 10th-oldest at 69 years, while Vanguard Wellington Fund, seventh on the list, turned 70 in July.
     Vanguard Group was founded in 1975, but the fund giant evolved from ties to a much older company, Wellington Management Co. in Philadelphia, said Jeff Molitor, a principal and director of portfolio review at Vanguard. Wellington is Vanguard's largest subadviser.
     "What gives a fund staying power is it fills an enduring need," Molitor said. "It's not a fad fund. It's not a sector fund. It has managers who have honed their craft over a long period of time."
     The Wellington fund, which invests in a blend of value stocks and high-quality bonds, has $26.6 billion in assets and is up 5.4 percent as of July 31, Morningstar said.
     Efforts to reach anyone at Fidelity to talk about the early years, or the Fidelity Fund, were unsuccessful.
     "Going through the list, there's a lot of really excellent older funds," said Peter DiTeresa, an analyst at Morningstar.

     But fund analysts and managers insist that age by itself is not an important factor. For example, the 10 largest funds include three names that haven't set the world on fire, DiTeresa said.
     The Scudder Income Fund, a bond fund that started in May 1928, has had below-average returns compared with its peers despite its low-risk approach, DiTeresa said. The same is true for the Seligman Common Stock Fund, which debuted in October 1929. And the CGM Mutual Fund has also had disappointing returns, he said.
     "Age as a factor doesn't tell you that much," DiTeresa said. "At Morningstar we like to see managers with a track record but when you look back that far you can be assured the dial has changed."
     Gunn, of Dodge & Cox, said the true advantage of an older fund is the organization behind it.
     "You look towards the organization and the people managing the money," Gunn said.
     The Dodge & Cox fund, with $5.6 billion in assets, is up 10.9 percent as of July 31, according to Morningstar. The fund buys "durable business franchises" with strong earnings that are out of favor on Wall Street, Gunn said.
     Among the Dodge & Cox fund's favorite stocks are Alcoa (AA), FDX Corp. (FDX) and Motorola (MOT).
     "We first want to practice an investor's Hippocratic Oath -- do no harm," Gunn said.
     With the exception of the Scudder fund, the other nine funds among the old-timers have earned 15.25 percent to 18.27 percent annualized over 15 years, according to Morningstar data.
     Other funds also produced double-digit returns in the same time. Fidelity's flagship Magellan Fund, the 150th-oldest fund started in May 1963, has 20.82 percent, while Fidelity Contrafund, established in 1967 and the 169th oldest fund, earned 21.58 percent.
     Davis New York Venture Fund, formed in February 1969, took home 20.45 percent in the same time, while Spectra Fund netted 23.19 percent.

     Beth Cotner, a senior portfolio manager at Putnam Investments and the lead manager on the third-oldest fund, the Putnam Investors Fund, said investors like the fact that the fund has been around since 1925. The fund, with $10 billion in assets, is up 4.4 percent year-to-date as of Wednesday, she said.
     "It gives investors an idea of how the fund tracks in good and bad markets," Cotner said.
     Putnam Investors Fund has another distinction -- of being the first growth-oriented fund, Cotner said. It started with 100 shares each of General Electric and Gillette.
     Since there were no technology companies back then, railroads and oil companies were considered growth.
     The fund still owns GE, as well as Exxon (XON) (then known as Standard Oil of New Jersey). It also owned AT&T (T) throughout its life until two years ago, she said.
     "If they are truly growth stocks, they can survive this amount of time," Cotner said.
     Gunn, of Dodge & Cox, pointed out that there were a lot of high-flying funds in the early 1970s that didn't survive the bear market of 1973-74. He said investors shouldn't pick funds based solely on great returns.
     "Past performance doesn't have anything to do with future performance. It's a massive delusion. … It's the most insane thing in the world," Gunn said. "You want a pick a fund with low turnover where the management has been around for a long time."Back to top


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