sundry investments–remain constant whether the fund has $1 million or $10 billion in assets. Reaching maximum efficiency, however, requires a good deal of capital–experts say $100 million or more in assets. As of midJanuary, Profit Lomax had amassed between $500,000 and $750,000. That’s not a shabby amount, but far from pay dirt, considering the fund doesn’t charge investors load fees and is therefore forced to eat expenses until it reaches a profitable mark.
A bull market sure helps new funds like Profit Lomax bide time. Hordes of individual investors have turned to mutual funds to save for everything from retirement and tuition to the downpayment on a new home. A fabulous two-year run in the stock market has its downside, though. During the most recent boom, the number of mutual funds elbowing one another for investment dollars has mushroomed from 3,427 in 1990 to 6,270 today. Fund competition is stiff. “The survival rate for new funds is well over 90%, I’d say, but that speaks to the bull market we’ve been in,” says Morningstar’s Phillips. “It’ll be interesting to see how they do if the market goes sour.” Opening its doors after so strong a run by the market begs the question of whether Profit Lomax has come along at the tail end of the party.
Stormy going could be near, says Randall Eley, who monitors the stock market’s pulse and keeps the mutual fund profitably invested. Eley’s jovial countenance, square-framed glasses and warm demeanor give him a calming appearance even as he talks of tough times. He feels corporate earnings gains that were up 9% in 1996 should shrink somewhat this year to the 4%-6% range. Such a scenario might frighten investors since the stock market is relatively overvalued, according to Eley. “We see a correction of as much as 20% by year’s end,” he cautions, “but as value managers, our job is not to time the markets, it’s to find the best investments in t
he market.” True to his word, Eley’s record suggests his investment strategies are practically bear-proof. As an institutional investor, he neatly sidestepped the crash of 1987 and the minicrash of ’89, liquidating part of his stake in the market, and reinvesting shortly after the downfall.
A “value” manager by training, Eley’s methodology is to steer Profit Lomax’s money into companies that look undervalued, and to hold those shares until the stock market has rewarded that stake with a higher price. It’s a bet that often requires a wait of months, if not years. Eley never strays outside large cap companies, the stalwarts of industry like the Goliath AT&Ts, General Motors, and Boeings. These stocks tend to be steady, dominate the S&P 500 and boast millions of shareholders. The “large cap” designation is derived by multiplying their price by the number of shares outstanding and then comparing that figure to the broad market.
It’s a school of investing that is often bypassed by thrill seekers, and the press as well. Large cap value managers can’t spout on