Going Against Flow Pays Off, Study Finds

It pays to be contrarian, notes mutual fund tracker Morningstar Inc. of Chicago.

Its recent study shows that the least popular fund categories one year beat the most popular categories over the next three years most of the time. Moreover, they beat the average equity fund almost as often.

Morningstar examined the percentage change in cash flows--the money going in or out--of funds since 1987. It found that unpopular categories have beaten the average equity fund over the next three years nearly 80% of the time.

And attention, tech-fund shoppers: When compared with popular fund categories, the unpopular categories have won out over the next three years 90% of the time.

The company suggests buying one fund from each unpopular category (for 2000 they are Latin America, precious metals and convertibles) to limit risk; holding the funds for at least three years; and limiting your bets to 5% or 10% of your portfolio.

Here are the unpopular mutual fund categories highlighted in Morningstar’s 2000 study:

* Latin America. Morningstar picked the following funds as good choices: Scudder Latin America (ticker symbol: SLAFX), Van Kampen Latin America (MSLAX) and Fidelity Latin America (FLATX).

* Precious metals. Its picks: American Century Global Gold (BGEIX), Vanguard Gold & Precious Metals (VGPMX) and Oppenheimer Gold & Special Minerals (OPGSX).

* Convertibles, defined as funds that invest primarily in bonds and preferred stocks that can be converted into common stocks. Morningstar’s choices: Davis Convertible Securities (RPFCX), Oppenheimer Convertible Security (RCVAX) and Fidelity Convertible Securities (FCVSX).