35% of U.S. Stock Funds in Red

More than one-third of diversified U.S. stock funds were showing red ink through Wednesday, presenting shareholders--and the fund industry--with their biggest challenge since 1994.

Although the market’s rally on Thursday helped lower the number of funds on the losers’ list, Morningstar Inc. reported that, through Wednesday, 993 of 2,795 domestic funds, or 35%, had lost money year to date. The average decline of the losers: 6.5%.

Not since 1994--when about 60% of all diversified U.S. stock funds fell, according to Morningstar--have so many funds been in the red.

Many of this year’s laggards are small-company-stock funds, including Fidelity Low-Priced Stock Fund and Vanguard Small Cap. They have been hammered as smaller stocks have suffered heavy selling since late April.

But the casualty list also includes some of the nation’s biggest funds, such as the $20.7-billion Vanguard Windsor Fund and the $8.7-billion Oakmark Fund, which put the bulk of their assets in shares of larger-sized stocks.

“This year is a reminder that sometimes you can actually lose money owning stocks no matter how you invest,” said John Rekenthaler, Morningstar’s director of research.

Oakmark Fund demonstrates how tough 1998 has been for many fund managers. The fund had annual gains of at least 30% in four of the previous six years, and it hasn’t had a down year since opening in 1991. This year, it was off 0.3% as of Wednesday.

By contrast, the S&P; 500 was up about 12%, including dividends.

“We certainly aren’t distinguishing ourselves this year,” said Robert Sanborn, Oakmark’s manager. The fund has been hurt by declines in stocks such as Philip Morris Cos., Banc One Corp., Washington Mutual and Knight Ridder Inc., he said.

Vanguard Windsor, managed by Charles Freeman, also is struggling this year because of investments in such shares as Alcoa, Reynolds Metals Co.; and Toll Bros. Inc., a home builder.

In 1995, just six of 1,640 diversified U.S. stock funds recorded losses, according to Morningstar. In 1996 just 14 of 2,028 stock funds fell, and in 1997 52 of 2,574 funds declined.

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Stock Fund Casualties

Here are some of the domestic stock mutual funds that were showing year-to-date losses as of Wednesday. Some of the funds may have pulled back into positive territory with Thursday’s market gains.

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Fund 1998 decline through Wed. Vanguard Windsor --0.5% Commerce Growth & Income --2.3 Alger Small Cap A --2.5 Navellier Growth --4.0% Baron Asset --5.5 Smith Barney Contrarian A --5.8 Vanguard Small Cap --8.5 Dreyfus Small Co. Value --10.3 Juricka & Voyles Minicap --13.4 Monetta Fund --13.8 Avg. growth stock fund +9.9 Avg. small-cap fund --6.1%

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Source: Associated Press