Fund Managers Provide Clues for the New Year

It’s that time of year to ring out the old, ring in the new--and make a few investment predictions for the next 12 months.

But before you do so, pay attention to what some of the best asset-allocation and global mutual fund managers are up to.

The people who run these types of funds are free to pick and choose from a broad range of investments. Asset allocators spend their time evaluating the relative merits of stocks, bonds and cash. Global managers devote their energies to deciding which of the world’s stock or bond markets to enter.

In either case, they have a wider investment mandate than, say, a manager who must stick exclusively with municipal bonds or blue chip domestic stocks.

The four asset-allocation and global portfolios listed below all have earned a superior four- or five-star rating from Morningstar Mutual Funds, a Chicago research publication. With one exception, they share a generally negative outlook for the U.S. stock market.

- The Flex-funds Group’s Muirfield Fund (no load; 800-325-3539) is that one exception. It now has a 75% exposure in U.S. equities, with 25% in cash and nothing in bonds. Portfolio manager Bob Meeder Jr. is encouraged by the stock market’s improving advance-decline ratio and good breadth.

Muirfield, one of the few funds that invests in other mutual funds rather than individual securities, has an above-average weighting in the small-company sector. Meeder believes that small stocks will outperform blue chips over the long haul.

Although Meeder likes the stock market’s momentum at the moment, he cautions that it may hit a pothole later in 1993. “We haven’t had a meaningful correction of 10% or more since mid-1990,” he says. “That’s an extended period without a significant decline.”

- Bob Beckwitt, who runs Fidelity Asset Manager (no load; 800-544-8888), is less optimistic about U.S. stocks. He believes that the domestic market is overpriced and that investors are too bullish. The situation now, he says, is the reverse of late 1990, when the recession and impending Persian Gulf War weighed down stock prices and the public’s mood--setting the stage for a sharp rally in 1991.

Also, Beckwitt predicts that the recent trend to lower interest rates will come to a halt in 1993, perhaps upsetting the stock market in the process.

These concerns explain why Fidelity Asset Manager has just 28% of its holdings in domestic stocks, compared to 40% normally.

Where Beckwitt sees value is in foreign markets. The fund has 12% of its assets in overseas (mostly European) stocks, 20% in foreign bonds and 15% in Mexican short-term debt. Combined, that’s almost 50% on the international side. “The foreign arena is where most of the opportunities will be next year,” Beckwitt predicts.

He considers European stocks much cheaper than U.S. equities and says Europe’s markets will get a lift as interest rates come down. “I see a dramatic fall in short-term rates throughout Europe, which would be good for both the stock and bond markets.”

As for the fund’s high Mexican exposure, Beckwitt believes that the country is in a “revolution of magnificent proportions.” Mexico, he says, stands to benefit from lower inflation, a declining national debt, tax cuts, a balanced budget and reduced regulation--in addition to the North American Free Trade Agreement. At the moment, high-quality, short-term Mexican bonds are yielding 18%.

- Jean-Marie Eveillard, manager of the conservative SoGen International Fund (3.75% load; 800-334-2143), agrees with Beckwitt that “the price is right” for European stock markets. But the timing, he says, isn’t.

The “europhoria” of the late 1980s has given way to pessimism about the crumbled Soviet empire, German reunification and European currency turmoil, he says. Eveillard doesn’t plan to boost his stake in the Continent until European interest rates start to drop and Europe’s stalled economies begin to respond.

For now, SoGen has 25% in U.S. stocks and 20% in foreign markets. Normally, the fund uld have at least 60% of its holdings in equities. U.S. stocks, according to Eveillard, are not only overpriced but vulnerable to higher interest rates.

In his view, the area of the world that’s still registering superior economic growth is Southeast Asia, where the fund has a 5% stake.

- One more fund that’s treading lightly in the United States is Putnam Global Growth (5.75% load; 800-225-1581). The portfolio has an 18% position here, compared to about 20% normally.

“The slight under-weighting in the United States reflects our view that while the economy is stronger and profits are recovering, the market has already discounted these factors,” says Tony Regan, the portfolio manager.

Regan is more bullish on Europe, where the fund has 40% of its assets. “The benefits of lower interest rates will be the theme there in 1993,” he predicts. The fund’s normal European weighting is between 25% and 50%.

Regan also favors Southeast Asia, which is still achieving “spectacular” economic growth of 6% to 8%. The fund has a relatively high 15% of assets in Southeast Asia, along with a 4% stake in Mexico.

The New Lineup

Here’s how six leading asset-allocation and global mutual funds are positioned heading into the new year. Four of these portfolios have lighter than normal stakes in the U.S. stock market. All six funds enjoy superior ratings from Morningstar Mutual Funds of Chicago.

Fidelity Asset Manager (no load; 800-544-8888)

Normal: 40% stocks, 40% bonds, 20% cash (can go up to 50% total in foreign)

Current: 28% U.S. stocks, 12% foreign stocks, 20% foreign bonds, 25% U.S. cash, 15% short-term Mexican debt.

Flex-funds Muirfield (no load; 800-325-3539)

Normal: Can go up to 100% in stocks, bonds or cash.

Current: 75% stocks, 25% cash, 0% bonds

INVESCO Financial Flex (no load; 800-525-8085)

Normal: 60% stocks, 40% bonds or vice versa.

Current: 62% stocks, 36% bonds, 2% cash

Putnam Global Growth (5.75% maximum load; 800-225-1581)

Normal: 20% U.S. stocks, 80% foreign stocks

Current: 18% U.S. stocks, 82% foreign stocks

Shearson Strategic Investors (5% maximum load; 212-720-9218)

Normal: 60% stocks, 30% bonds, 10% cash

Current: 50% stocks, 35% bonds, 15% cash

SoGen International (3.75% maximum load; 800-334-2143)

Normal: 60%-65% stocks (combined U.S. and foreign), 35%-40% bonds and cash.

Current: 25% U.S. stocks, 20% foreign stocks, 14% U.S. bonds, 6% foreign bonds, 5% gold stocks, 30% cash

Note: Stocks, bonds and cash are U.S. unless otherwise noted.