Originally created 07/09/01

Of mutual interest

NEW YORK -- By their name, mutual funds that label themselves "growth and income" seem to offer the best of two big investment strategies.

Combined, the growth and income styles could be especially appealing to skittish investors who since late last year have been weaving between riskier, growth-oriented sectors, such as technology, and safer blue-chip industries, such as health care and financials.

"Bottom line, I think it is a good place to hedge your bet," said Louis Salemy, fund manager for Fidelity's Growth & Income II.

Investors have been conflicted over both investment styles lately.

On one hand, they enjoy the pace of growth, which over the long term yields bigger returns and which really surged in the late 1990s. However, investors are also mindful of the fact that as the economy began slowing last year, the steadier income approach - also called "value" - was the better performer.

That explains the appeal of a fund that promises both, said Don Cassidy, senior researcher for Lipper.

"People are going to say, 'Great. I want both; it's safer,"' Cassidy said.

But Cassidy doesn't care for the "growth and income" title, saying it's not accurate because many of the funds are heavier on the growth side.

The first step for investors who are considering purchasing shares in a growth-and-income fund is to decode the name.

There's growth, meaning the fund's holdings includes companies that aim to grow earnings more quickly than its industry or the overall market. Growth stocks pay little or no dividends as the companies reinvest income back into the business.

And there's income, focusing on companies that pay shareholders a portion of earnings as a dividend.

It's also important to note that the two big fund-tracking firms, New York's Lipper Inc. and Chicago-based Morningstar, have different names for growth-and-income funds. Lipper calls them "core" funds, and to Morningstar they are "blend" funds.

"I think that the naming of a growth-and-income funds has a tendency to promise more than it delivers today," Cassidy said. "Ten years ago, when there was income out there to be had, it was probably a more accurate name."

Few new companies offer dividends, while many Old Economy companies - particularly ailing ones - are cutting back on such payments. Xerox Corp., for example, announced in October reduced its dividend by 75 percent to 5 cents per share.

What it means is that investors who want the safety that income offers via a dividend check must investigate a growth-and-income fund before investing in it.

There are also a number of Web sites, such as Morningstar.com, that profile individual funds, providing such information as performance and top holdings.


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