(MONEY Magazine) – Conventional wisdom says you should avoid equity funds whose managers trade stocks the way restless 10-year-olds swap baseball cards. Reason: When funds replace 75% or more of their stocks each year, they generate superhigh trading costs that squeeze profits. But two studies during the past year indicate that there are moneymaking exceptions to this rule.

In the first survey, James Yoder of the University of South Alabama and Walton Taylor of the University of Southern Mississippi divided all 204 stock funds that were operating between 1979 and 1991 into high- and low-turnover groups. The high group consisted of funds with an annual turnover that exceeded the 77.4% average for all the funds over that 13-year period; the low group contained those that fell below it. The professors then compared the total returns of the two groups over that 13-year stretch, as well as in two subperiods within that time frame. Their conclusion: The high-turnover funds' gains, net of expenses, equaled those of their low-turnover counterparts 58% of the time and exceeded them in 35% of the cases. Says Yoder: "We're convinced that managers can create enough value to offset trading costs."

The Value Line study went a step further, looking at the relationship between performance, risk and turnover of 531 equity funds in existence over the five years to Jan. 1, 1994. Specifically, Value Line separated the funds into high- or low-risk groups depending on how much their monthly returns fluctuated, and then further ranked them from highest to lowest average annual turnover. Value Line found that high-turnover funds with the most volatile stocks earned the loftiest returns--18% annually. By contrast, fast-trading funds with low volatility, and therefore presumably less risk, scored the lowest gains--just 11% annually. Conclusion: High turnover can lead to oversize gains but only at funds invested in mercurial stocks.

With these findings in mind, consider the five funds in the table at left. Led by $875 million AIM Aggressive Growth, these volatile funds turned over their portfolios up to 193%--more than the average stock fund-yet posted returns that rank them in the top 10% of their respective categories. The message: If portfolio churn doesn't make your belly burn, give them a look.

--PRASHANTA MISRA