Long-Term Advice Pays Off

B.E. suggested these funds four years ago. Here's how they did.

Long-term investing is something we preach in every issue of BLACK ENTERPRISE. So, four years ago, when J. Draughn asked BE to suggest some high-growth mutual funds that could provide substantial gains (Moneywise, January 2002), it was a perfect opportunity to demonstrate how anyone can use the resources available to them on the Internet to select mutual funds that can deliver.

We directed Draughn to Morningstar (www.morningstar.com), the Chicago-based mutual fund tracking company that regularly lists its top domestic mutual funds. At the time, the economy was in a recession brought on by the terrorist attacks of 9-11. While Draughn asked for “high-growth” funds, I felt it best to recommend funds that had solid long-term performance, thereby increasing the likelihood of success in bad market conditions.

The four mutual funds BE recommended scored an 81.05% gain during the four-year period from Oct. 1, 2001, to Oct. 1, 2005. Over the same time period, the Dow Jones Industrial Average posted a 15.04% gain and the S&P 500 Index rose by 13.89%.

The top performer was First Financial Fund Inc. (NYSE: FF), a fund that holds a number of financial services companies. First Financial grew a spectacular 255.10%, its share price rising from $5.59 to $19.85. The record number of mortgages that have fueled the housing boom and the increase in consumer borrowing undoubtedly helped boost the revenues of companies in the financial services sector.

Source Capital Inc. (NYSE: SOR), a mid-cap value fund that holds industrial, retail, and technology companies, among others, performed exceptionally as well. Its shares rose 53.63%, from $45.40 to $69.75. Strong consumer spending at retail outlets and on consumer electronics helped.

The Gabelli Convertible & Income Securities Fund Inc. (NYSE: GCV) also performed well. This fund, which uses convertible securities — bonds that can be converted to stocks — grew 16.49%, going from $7.76 to $9.04 per share.

The one disappointment in the small group of funds BE suggested was the Nations Balanced Target Maturity Fund (NYSE: NBM). The fund, which carried both stocks and bonds of large corporations, lagged in poor market conditions and was liquidated on Sept. 30, 2004. At that time the fund had lost 1.05% from our entry point, falling from $9.55 to $9.45 per share.

Comany TOTAL RETURN* CURRENT VALUE OF $1000 INVESTMENT
NYSE FF 255.10% $3,550.98
NYSE GCV 16.49% $1,164.95
NYSE SOR 53.63% $1,536.34
NYSE NBM** -1.05% $989.53

* Total Return Reflects Stock Appreciation And Includes Stock Splits And Dividends.
**Nations Balanced Target Maturity Closed After Liquidating Its Shares On September 30, 2004.
Source: Yahoo! Finance, Bigcharts, A Service Of Marketwatch

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