Surge in Bank Shares Fuels Rise in New Mutual Fund
This year's surge in bank stocks has helped fuel the rise of a new mutual fund that takes its name from a popular investing idea that fizzled 20 years ago.
The Pasadena Nifty-Fifty Fund, which focuses on 50 select growth companies, appreciated an impressive 44% from its inception last Dec. 17 through July 31.
It has gained 8.25% since mid-year, against rises of 2.7% for the Dow Jones Industrials and 5% in the Standard & Poor's 500.
The fund currently owns a trio of superregional banks: 7,000 shares of NCNB Corp., 8,000 shares of BankAmerica Corp., and 4,500 shares of Wells Fargo.
The fund's manager, Roger Engemann & Associates Inc. of Pasadena, Calif., is a longtime holder of NCNB.
That stock has jumped 75% in value since the fund opened and 6% since midyear, mostly since the Charlotte, N.C., company said it would acquire C&S/Sovran Corp.
In a stroke of good timing, the fund bought BankAmerica shares just weeks before the San Francisco bank stunned the industry this summer with plans to acquire Security Pacific Corp. BankAmerica shares are up 22% since midyear.
Blunder with Wells
The Wells Fargo shares, however, were purchased before news of a big second- quarter loan-loss provision sent them tumbling.
Wells Fargo stock is off 22.6% from its peak closing price and is ahead just 3% for the year. Nevertheless, it has gained 17.2% since midyear.
The Nifty-Fifty Fund's 30.47% return in the first half of the year was second best among growth-oriented mutual funds, according to Morningstar Inc., a Chicago firm that follows funds.
"Nifty Fifty" is an investing concept born in the late 1960s. The idea was to invest in 50 companies whose limitless growth prospects would produce superior returns under any market conditions. But as many go-go investors learned painfully, nothing lasts forever.
The new Nifty Fifty managers claim that proprietary screening techniques will keep them from falling into the same trap.
But their strategy also centers on holding 50 companies with sustained earnings momentum, price, and market position; strong managements and clean balance sheets; and a growth rate of 15% to 20% annually.
Some Luster Erased
The fund also carries a hefty 5.5% load, which erases some of the luster from reported gains.
Banks are only one component of the fund's portfolio, and not the only ones to have scored spectacular price gains. Wal-Mart Stores Inc. gained 75% and Home Depot Inc. gained 41%.
Financial stocks account for 11% of the Nifty-Fifty portfolio.
Besides the three banks, the financial stocks owned are the Federal National Mortgage Association and Federal Home Loan Mortgage Corp., Berkshire-Hathaway Inc., Franklin Resources Inc., and United Asset Management Corp.
Major banking stocks were mixed in moderate trading Thursday as the stock market slipped into a preholiday trading pattern.
The most active stock of the group was BankAmerica Corp., San Francisco, which rose 62.5 cents to $44 on late afternoon volume of 1.1 million shares. Analysts noted that some of the activity was probably dividend-related. [Graph Omitted]