Newspaper article THE JOURNAL RECORD

Investors Look beyond S&P 500 Funds

Newspaper article THE JOURNAL RECORD

Investors Look beyond S&P 500 Funds

Article excerpt

NEW YORK -- Many investors not only want solid profits, they want them with a minimum of risk.

That's why they have turned to "enhanced" S&P 500 funds, or funds that try to outperform the well-known market index, while at the same time minimizing investors' risk.

Enhanced S&P 500 funds buy stock in companies outside the 500 stocks that make up the index. The companies are selected through highly sophisticated computer programs that consider all of a company's important historical financial data.

Fund watchers familiar with enhanced funds say much of the analytical work is geared toward reducing the added risk brought on by tinkering with the traditional S&P model.

"The traditional S&P 500 index fund is only going to get you so far, and the mutual fund arena is kind of saturated with these things," said Chris Brown, an analyst with Financial Research in Boston. "The enhanced funds provide a different take."

Given the steady growth of the S&P 500 index over the past decade, a mutual fund that outperforms the index by just one percent is an attractive proposition, Brown said.

"That's where returns will really start to compound themselves," he said.

Take American Century's $5.5 billion Income & Growth Fund, for example, which tends to focus more on smaller companies whose stocks are undervalued along with small, but fast-growing companies.

The fund still holds positions in such blue-chip giants as General Electric, Microsoft and Chase Manhanttan Bank.

It is trailing the S&P 500 by 1.24 percent in 1999, and by 2.86 percent over the past year, but it has outperformed the index by 0.15 percent over the last three years, according to Morningstar.

John Schniedwind, a senior vice-president and portfolio manager at American Century, attributed the fund's recent lackluster performance to a dismal first quarter of 1999, when a handful of large-cap stocks did phenomenally well, a dynamic that drew attention and money away from virtually every other segment of the market. …

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