Q: I’m interested in investing in high-growth mutual funds that can provide the most gains. Which funds do you suggest?
–J. Draughn, B.E. Bulletin Board
A: First, remember that mutual fund investing is a long-term proposition. We went to Morningstar (www.morningstar.com) for help with finding some of 2001’s top performers. Choosing from Morningstar’s list of the top 20 domestic stock funds as of the end of October 2001, these are some we think will flourish this year:
Source Capital (NYSE: SOR; 800-982-4372), a midcap value fund, had a 20.3% return through October. The fund has 73% of its holdings concentrated in industrials, technology, and retail companies, and its three-year annualized returns were a robust 19.63%. First Financial (NYSE: FF; 800-451-6788) is a value fund that specializes in financial services companies (96.2% of its holdings are in this sector). The fund produced a 20.3% gain through October and should continue to benefit from the 10 interest rate cuts the Fed implemented in 2001. The Gabelli Convertible Securities fund (NYSE: GCV; 800-422-3554) capitalized on the move to convertible securities–bonds that can be converted to stock–this year. Its holdings are well diversified in utilities, services, and industrials, which helped it return 23.1% through October. Its three-year annualized returns were 11.69%; and our last selection, Nations Balanced Target Fund (NYSE: NBM; 800-321-7854) is a hybrid fund that contains both bonds and stocks of large-cap companies. Currently more heavily weighted in bonds (83.8%) to generate steadier performance, the fund returned 12.6% through October and has a five-year annualized return of 11.15%, which might please long-term, more conservative investors.