And Now For Something A Little Different

 

Among the great, gray masses of mutual funds that are listed in the newspaper every day, there are a few that might be considered the nonconformists of the industry. Most of these don't fit neatly into any of the conventional fund classifications, and most assemble a mix of investments that other fund managers might consider a tad eccentric. That is not to say that the nonconformists are particularly risky -- in fact, they are often set up to protect investors against sliding markets and other catastrophes. But their appeal comes as much from their individual style as from their claims to performance.

Here is a sprinkling of recent nonconforming creations:

The Equity Income Fund, S&P 500 Index, for all its lengthy name, is probably the simplest of the lot. Introduced last June by Merrill Lynch, Pierce, Fenner & Smith and three other brokerage houses, it simply buys all the 500 stocks that make up Standard & Poor's well-known market index. Why would anyone want to buy such an unexciting collection? Over the long run, studies have shown, it is hard for most investors and fund managers to "outperform the market," meaning outperform the S&P or any other broad-based average. So, although a lot of aggressive-growth funds, for example, may rise faster than the averages in a bull market like this year's, they are apt to decline faster when things turn bearish. Buy the index fund, the theory runs, and you have a rock-solid collection of companies in your portfolio. And, although you won't do any better than the market as a whole, you won't do any worse either.

The Prudential-Bache Option Growth Fund, which began operating last April, indulges in such stock-market arcana as puts and calls, market index futures, and stock warrants, all with the objective of offering investors a little more downside protection than traditional equity funds allow. Usually, explains Prudential-Bache vice-president Andrew Freund, mutual-fund managers are caught in a bind when the market drops, since they can't get out quickly enough. The funds have little option -- so to speak -- other than riding the market down. Pru's new fund, however, can buy put options on individual stocks or index futures, or it can short the index futures themselves. "It really gives managers the ability to follow their convictions," says Freund, adding that the fund is more likely to beat the averages in sideways and down markets than in a full-fledged bull market.

The Calvert Social Investment Fund is one of a small group (others include the Dreyfus Third Century Fund and the Pax World Fund) that buy stocks according to a variety of "social" criteria as well as economic performance. Calvert Social Investment buys no alcohol or tobacco companies, no companies with investments in South Africa, and no companies that rely too heavily on military work. On the positive side, it seeks out companies with better-than-average environmental and labor records, and those whose products seem particularly beneficial to society (new medical diagnostic equipment, for example). Introduced in late 1982, it had about $5 million in its managed-growth portfolio as of early fall, with another $15.4 million in a related money-market fund. Do all the investment criteria get in the way of performance? Grace Parker, assistant vice-president of the fund, doesn't think so. "We exclude the things that lead to poor performance," she says. "Providing products and services keyed to a real need, or increasing productivity through good employee relations, can be the clearest path to making a profit."

Finally, The Permanent Portfolio Fund offers what its creators hope will be a measure of protection against any eventuality, save, perhaps, nuclear holocaust. Brainchild of financial writer Terry Coxon (author of Inflation-Proofing Your Investments), the fund owns a diversified and always-stable collection of assets. Expect hyperinflation? Permanent Portfolio has 35% of its assets in gold and silver bullion or coins, and in the usually reliable Swiss franc. Looking for deflation and depression? Another 35% is in Treasury bills and other safe, dollar-denominated assets. The rest is divided among selected equities, with an emphasis on real-estate and natural-resource stocks. "The portfolio will never do as well as a successful trader," says Coxon. "But it's an investment you can walk away from. You don't have to wonder what's going to happen each day."