- The Washington Times - Monday, March 13, 2000

Alexander Cheung took his clients' money last year and multiplied it 273 times.

No Wall Street wonder worker, Mr. Cheung manages the Internet mutual fund from his modest office at Monument Funds near the Beltway in Bethesda.

He achieved the spectacular return in 1999 by catching the Internet wave early.

Monument is just one of a number of homegrown mutual fund companies that have thrived in the booming economy. Within the Washington-Baltimore region, investors can choose among money managers who specialize in everything from the Internet to international commerce.

Locally, some of Monument's peers are ProFunds, Rydex Funds, Calvert Group, Legg Mason and T. Rowe Price, each of which has very different strategies for managing money.

"This is a testament to the fact that there are a lot of interesting mutual fund families in the area," said Ed Rosenbaum, director of research for Lipper, a Summit, N.J., mutual fund tracking firm.

Local companies manage just a piece of the nearly $7 trillion that 48 million U.S. households have invested in almost 7,000 mutual funds, according to the Investment Company Institute. But their piece of the action is growing.

Only 5.7 percent of U.S. households had invested in mutual funds in 1980, compared with 47 percent in 1999.

Even though local money managers are far from the core action on Wall Street, their funds have done well in recent years especially those that have cashed in on technology trends.

Mr. Rosenbaum said mutual fund families' location does not determine their performance.

"You can buy a stock from anywhere, but more importantly, you can get your information from anywhere," he said.


Mr. Cheung must be getting good information. His Internet Fund has gotten media and investor buzz and Mr. Cheung now manages $255 million in investor assets.

Monument actually manages three funds the others, a medical sciences fund and a telecommunications fund, have $95 million in assets.

Mr. Cheung is optimistic about his fund's future, though he knows its returns may not be as impressive as they were in 1999.

"What we saw last year was kind of extraordinary. It was symptomatic of a young sector. Of course, there's still a lot of money to be made as the sector matures over time," he said.

"We only have a few percent of the world's population connected to the Internet, but that number is going to swell quickly."

Robert Burgoyne, Monument's vice president and director of managed accounts, said his company's approach is a relatively new one in the mutual fund industry.

"We call it new economy investing," he said.

That means investing in high-growth fields like the Internet, biotechnology and telecom. Mr. Burgoyne said stock market investors are falling into two categories those who look at earnings and stock prices, and those who try to estimate growth potential.

"The growth potential for some of these companies is larger than anything that's ever been available to anyone," he said.

New economy stocks have been strong in recent weeks often at the expense of more traditional, manufacturing or service companies. The Dow Jones' 13 percent fall so far this year and the Nasdaq's first rise above 5,000 reflect investors' growing disenchantment with traditional companies and love affair with technology stocks.

Monument was founded in January 1997, and introduced its first fund a year later. Mr. Burgoyne said the Internet fund has holdings in companies that make up the Net's infrastructure, established firms like Cisco Systems or Sun Microsystems.

Mr. Cheung said the balance of the fund's holdings might change as the Internet matures.

"We basically are long-term investors trying to look at the next three to five years and five to 10 years and look at how the market evolves over time," he said.

Mr. Rosenbaum of Lipper said sector investing can be a tricky proposition.

"The narrower you slice the fund's mandate, the more specific risk you have,' he said.

He noted that for any fund, investors should educate themselves on what they're getting into the character of the fund and its risks.

Index funds

The top-performing local funds managed by Rydex and ProFunds take an almost opposite approach to that of Monument. Rather than focusing on a specific sector of the economy, these funds attempt to mirror the performance of a given index.

Index funds have a stake in every company in a given index the S&P; 500, for example. According to mathematical formulas, the proportion of each holding changes as the market goes up or down. Rydex and ProFunds then attempt to improve on the index's performance by investing in other financial products.

ProFunds' UltraOTC Fund seeks to double the returns of the Nasdaq 100 by buying a piece of all 100 companies, and additionally investing in futures. The fund was highly successful in 1999, coming in first in its peer group with a 233 percent return, according to Lipper.

"The focus of our group is, we have taken indexing and evolved it," said Michael Sapir, the Bethesda company's chairman and chief executive officer. The firm was founded at the end of 1997, and now manages close to $3 billion in assets in its 12 public funds and three funds available through insurance products.

For the contrarian investor, the company operates a Bear ProFund, which goes down when the market is up and vice versa.

Rydex works in much the same manner as ProFunds, though the company does manage 15 sector, or industry-specific, funds as well as six index-based funds. Its best performer last year was its OTC Fund, which had a 100 percent return and was fifth in its peer group by improving on the Nasdaq 100's performance. The company manages $9 billion in assets for more than 33,000 investors.

A.P. "Skip" Viragh, the Rockville company's president and founder, said he started the company in 1993 by courting market-timers money managers who take their money in and out of mutual funds depending on market performance. Most mutual fund families tend to discourage market-timers because they are considered disruptive, Mr. Viragh said.

When Rydex was created, the company exclusively pursued market-timers, who comprised 100 percent of the company's investors. Now that figure stands at 20 percent as the company has become more established, with the remainder of investors coming from the buy-and-hold school of money management.

Mr. Viragh said an index fund is designed to be more stable than an equity fund, for example.

"We're not really a research house that looks under the rock to find the next Microsoft … We mimic exactly what the index is doing," he said.

"Over the last 10 years, indexing has exploded … because people are questioning whether active managers can outperform the market," said Mr. Sapir of ProFunds.

Mr. Rosenbaum said that attempting to improve on an index's performance is a relatively new phenomenon, though indexing is an old idea.


]Another up-and-comer in the mutual fund world is socially conscious investing. Though Bethesda's Calvert Group has been around since 1976, the concept of socially screened stocks is picking up in popularity.

Calvert's socially responsible funds do not have holdings in companies with alcohol, tobacco or gambling interests, and they also examine companies for labor and environmental abuses.

Ramy Shaalan, a mutual fund analyst with Wiesenberger Thomson Financial, a Rockville financial research firm, said socially screened funds started to take off in 1997. Assets invested in such funds grew from $69 billion in 1996 to $93 billion in 1997, then rose to $113 billion in 1998, Mr. Shaalan said.

"As the bull market continued its growth and good returns were achieved in various sectors, investors started being more tolerant to non-moneymaking sectors. They started considering values like social responsibility," he said.

But even after taking those values into account, investors are still making a profit.

Mr. Shaalan said that a company that takes care of its workers a potential criterion for socially screened funds is also a good company in which to invest.

Mr. Rosenbaum agreed, saying socially screened funds have a reputation for underperforming but it's a false perception.

"It's not necessarily true that just because a fund is socially responsible means it's going to underperform," he said.

He noted that Calvert's Social Investment Equity Fund, one of the company's eight socially responsible funds, is in the top third of its peer group. Last year, its return was 23 percent, compared to an average of 21.5 percent for other multi-cap core funds.

"The Washington, D.C., area is a perfect place to have a company like that" because residents are aware of social issues, Mr. Rosenbaum said.

Calvert's assets under management, in 26 funds, total $6.5 billion. The company's socially screened funds contain $2.2 billion, up from $1.7 billion in 1997.

But Calvert's best-performing fund isn't socially screened it's not even an equity fund, but a fixed-income one.

The Calvert Income Fund outperformed all of its peers in the one-year and three-year period, achieving 7 percent returns last year while its peers averaged a negative 1.7 return.

The fund buys corporate bonds, or debt, from any company that meets its credit criteria, said Reno Martini, Calvert's chief investment officer.

"In the last couple of years, I think we've been in the right part of the curve," he said.

"With investors becoming so equity-oriented, they have ignored the fixed income market," but Calvert has done well, he added.

Legg Mason

One of the best-known mutual fund managers resides at Legg Mason in Baltimore.

Bill Miller manages the Legg Mason Value Trust, which falls into the large-cap growth category. The fund placed 315 out of 420 such funds last year, but still performed well compared to the average 28 percent returns compared to the average 38 percent.

Tal Daley, senior vice president and director of the company's marketing arm, said the firm aims to attract long-term investors.

"We are looking for people who are basically extremely busy and can appreciate a financial adviser, mutual fund company steeped in intellectual capital," he said.

The company wants clients who are educated about their investments and Mr. Daley said clients are, in fact, more knowledgeable than in the past about investing because of media exposure.

Legg Mason is more focused on long-term growth than "jumping on the hot area bandwagon," Mr. Daley said.

The company's assets under management, in 24 funds, reached $104 billion at the end of 1999, up from $35 billion four years ago.

T. Rowe Price

T. Rowe Price, a mutual fund management firm based in Baltimore, is the nation's tenth-largest mutual fund company, with $180 billion in 77 funds.

The company's top performer is its International Discovery Fund, a small-cap fund with a 155 percent return compared to the peer group average, 74 percent.

The fund has been almost too successful. Last Wednesday , T. Rowe announced it was closing International Discovery to new investors. The company's chief investment officer, John Ford, said in a press release that the fast pace of cash into the fund could threaten its integrity.

Bill Rocco, a senior analyst with Morningstar, a Chicago mutual fund tracking company, said T. Rowe has strong international holdings.

"As the U.S. market slowed down, people started to remember that a good, well-rounded portfolio needs a significant chunk of international exposure," Mr. Rocco said.

Washington-area investors could achieve that well-rounded portfolio just by investing in funds managed in their backyards. As investing both directly in the stock market and through mutual funds has become more popular, mutual fund choices have increased.

Local companies have focused on niches within the mutual fund industry to carve out customer bases.

"As the mutual fund market has gotten broader, the industry has understood that not all investors are looking for the same thing," said Mr. Rosenbaum of Lipper.

"Mutual funds have gotten a bad rap as being a boring instrument."

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