Switching Among the Funds

SINCE today's fast rising mutual fund can easily turn into tomorrow's loser, one way to make money in funds is to be a fair-weather friend. You get out of the losers and into the winners by switching from fund to fund in an ongoing effort to be in the groups or sectors offering the best returns. Reading widely of the business press may help you to anticipate big up and down swings in the stock market. When the market is advancing rapidly, you invest in the speculative funds. Then at the merest flutter of danger, you can switch to the safety of a more secure conservative fund or a money market fund. Investors also quite often have the option of moving to tax free municipal bond funds or corporate bond funds within a group managed by the same fund company.

But you need to know when to switch and more specifically which fund to switch to. For this reason it probably pays to subscribe to a monthly newsletter advisory service that tracks the performance of the various funds and may recommend the best buys or timely sells. Among those newsletters are United Mutual Fund Selector (2 10 Newbury Street, Boston, Massachusetts 02116; $110 a year); Growth Fund Guide (P.O. Box 6600, Rapid City, South Dakota 57709; $89 a year); Mutual Fund Specialist (P.O. Box 1025, Eau Claire, Wisconsin 54702; $95 a year); NoLoad Fund X (235 Montgomery Street, San Francisco, California 94104; $ 100 a year); Mutual Fund Strategist (P.O. Box 446, Burlington, Vermont 05402; $149 a year) and No Load Fund Investor (P.O. Box 283, Hastings on Hudson, New York 10706; $82 a year).

The letters rank the mutual funds according to how much the prices of their shares rise or fall in value over a period of time: one month, three month, six month or one year periods. One strategy of switching is to (1) buy into the mutual fund that is on top of the rankings for performance over the past year, and (2) keep your money in that fund as long as the advisory service tells you it is among the top five in its category for the past year. The categories that the funds are divided into are growth and equity income.

When your newsletter arrives usually a week to 10 days after the end of the month a quick glance will tell you if the fund you are invested in is still on top. If it is not, you replace it with the new number one. You must be willing to go to the trouble of closing your account with one mutual fund company and opening a new account with another company that offers the currently best performing fund in its category. According to one study, if you had followed such a switching strategy between early 1979 and early 1989, your money could have grown at an annual compounded rate of just over 24%.

Leapfrogging from fund to fund in search of the best return does require a bit of work. The first step is to call the toll free 800 number of the new fund you want to invest in. You can get these numbers from mutual fund newsletters or mutual fund companies' ads or merely by dialing toll free information at 800 555 1212.

When you reach the mutual fund company, ask for shareholder services. Tell the person with whom you speak that you want to open an account and then request an account number for yourself.

Next, write to the head of the shareholder services at your old fund, that is, the one you are currently invested in. Your letter should say, "Please sell all full and fractional shares in the account of.. ." and then give your name and your old account number. Ask that the redemption check be made payable to, and sent to, the new fund you are moving to. And be sure to request that the words "for the benefit of " appear on the check, followed by your name and your new account number.

Probably it will take one to two weeks for your money to arrive at your new mutual fund. You can short circuit this process if you have a money market account with the mutual fund that you are leaving. Tell that fund to switch all your assets to your money market account. Then write a check for the full amount you have in the account and mail it to your new mutual fund.

Fortunately, there is one way to skip that paperwork. All you have to do is open an account at any office of Charles Schwab & Co., the San Francisco based discount broker. Then, by making a single toll free phone call to Schwab you can switch in and out of some 325 mutual funds. Schwab will charge a fee based on the size of your order, so this will cost you more than if you shift assets on your own.