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When You Want a Little of This, a Little of That

August 06, 1995|RUSS WILES | RUSS WILES, a financial writer for the Arizona Republic, specializes in mutual funds.

You can go to a restaurant and order a sampler plate filled with small portions of various types of entrees. It's becoming easier to do the same thing with mutual funds.

More fund groups now offer single portfolios that feature a taste of what different managers have to offer. This idea appeals to people who either don't know which funds to buy or don't have enough cash to invest in several.

Sampler funds follow one of two basic menus, depending on whether they use in-house or unaffiliated funds and managers.

In the first category are products such as T. Rowe Price's Spectrum Growth and Spectrum Income portfolios, each of which invests in other T. Rowe Price funds.

"The funds selected really do represent our flagship products in each investment category," says Steve Norwitz, a company spokesman in Baltimore.

So, too, with the four LifeStrategy funds from the Vanguard Group in Valley Forge, Pa. These invest in five or six other Vanguard funds, with emphasis given to some of the company's best and most popular choices.

One advantage to both the T. Rowe Price and Vanguard sampler funds is that expenses are modest. Shareholders pay a pro rata part of the expenses charged by the individual funds held in the Spectrum and LifeStrategy portfolios but no fees beyond that.

Total expenses on Spectrum Income thus work out to about 0.75% annually, or $18.75 a year on a minimum investment of $2,500. Expenses for LifeStrategy Income are even lower--about 0.35% yearly, or $10.50 on a $3,000 minimum investment.

Expenses tend to run higher on another type of sampler product: those that invest in mutual funds offered by unrelated fund groups. The advantage of these is that you're not locked into managers from just one fund family. The drawback is that the second layer of fees can really add up.

Consider FundManager Trust, a New York family of funds headed by Michael Hirsch, a noted mutual fund expert and author of two books on the subject.

FundManager Trust offers five portfolios, ranging from an aggressive-growth product to an income choice. Each portfolio holds between eight and 12 funds from load- and no-load companies alike, though any load funds are purchased on a no-commission basis.

For example, FundManager Trust Aggressive Growth has stakes in New York Venture, Brandywine, Templeton Growth, New Perspective, SoGen International and five other mutual funds. FundManager Aggressive Growth charges about 1.7% a year in expenses on top of costs levied by the various funds held, which eat up another 1% or so.

The double-expense burden takes a toll, as FundManager Trust Aggressive Growth has lagged other aggressive funds in recent years, according to data from Morningstar Inc. of Chicago.

Several other groups also pursue a fund-of-funds approach, with varying degrees of success. These include the Markman Multifund Trust in Minneapolis and Merriman Funds in Seattle.

Perhaps the most interesting twist on the sampler theme involves funds that invest in the favored individual stock picks of various managers.

Montgomery Funds of San Francisco has a product of this type on the drawing board. Called the Select 50 fund, the portfolio would hold 50 stocks chosen from Montgomery managers working in five different areas--large and small U.S. companies, high-yielding stocks and stocks from both developed and emerging foreign nations.

"I like the idea that you're getting the cream of the crop in terms of investment ideas," says Steve Matuszak, executive editor of the Fax on Funds newsletter in Reno.

But no launch date has been set, because Montgomery is still trying to devise a way to keep the fund's assets equally apportioned among the five stock categories, because some categories will outperform others over time.

"The question becomes one of reallocating the existing assets as well as new cash flowing into the fund," says John Story, executive vice president of Montgomery Asset Management. "The challenge is to keep the portfolio in balance."

An existing fund, Strong Asset Allocation, already offers a sampling of individual stocks, as well as individual bond picks, chosen by eight stock and bond managers at the Milwaukee firm. The fund has leeway to move into foreign stocks and bonds, or to raise cash when stocks or bonds appear overpriced.

Strong Asset Allocation has achieved reasonably good results over the years with moderate expenses of 1.2% annually.

When done right, sampler portfolios offer an easy, low-cost way to tap into the expertise of many different fund managers. They make sense for people who don't want to pick individual mutual funds on their own.


The public's knowledge about mutual funds might be diminishing, suggests a survey by the American Assn. of Retired Persons and Scudder, Stevens & Clark of New York.

In a survey last spring of 933 Americans ages 50 and older, 28% said they know nothing about mutual funds, compared to 24% who said that in 1994. Only 9% said they knew a "great deal," down from 11% the previous year.

However, knowledge of mutual funds was greater in higher income brackets. Of people with household incomes above $50,000, 18% said they knew a great deal about funds, and only 9% said they knew nothing.

Scudder manages a family of funds for the AARP. The survey results are deemed accurate to within five percentage points.

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