That Mutual Feeling

Nearly 1,000 runners from Wall Street underwriters and dealers converged one morning last week at 1 William Street, home of Manhattan's old (108 years) Lehman Brothers. The runners turned over checks for $183,070,380, picked up 15,833,114 shares of Lehman's new One William Street Fund, Inc.--the largest initial financing ever made by an investment company. Then Lehman Senior Partner Robert Lehman turned a check for the total amount over to the Fund president, Dorsey Richardson. Lehman originally planned to sell only 3,000,000 shares. But demand proved so great that Lehman increased the offering to 16 million. The response amazed all Wall Street, which had no idea there was so much money available from small investors, particularly during a recession. Sparked by Lehman's success, Lazard Freres & Co. announced that it will start a mutual fund, the fifth to be launched since January 1.

Since 1940, when their policies came under SEC regulation, mutual funds have been among the fastest-growing of all forms of investment. More than 1,500,000 investors today hold shares of 168 diversified investment companies with a total net asset value of about $11 billion. The funds put more than $100 million a month into the securities market, hold about 3.8% of the dollar value of all shares on the New York Stock Exchange. The recession has scarcely slowed the growth of the popular "open-end" funds.* While sales of the mutual funds' shares were off a bit in the first quarter, in April they rose to $122 million, v. $113 million in April of 1957, and the funds expect 1958 to be even bigger than 1957.

The big growth has come in the open-end funds, whose assets total $9.5 billion (see chart). They are so big that some Wall Streeters fear that a wave of redemptions from worried investors might force a market break. But in all the recent sharp market breaks, the funds have bought, not sold, and thus given stability to the market. Recently the funds, thinking the market too high, were cautious about buying; of the 15 largest funds, twelve reduced their percentage of common-stock holdings in the first quarter.

The funds appeal to small investors because they provide great diversity and professional management. But the fund buyer pays commissions of up to 8%. How do the professional managers fare? With the rising market of the last ten years, nearly all the funds show impressive gains. But few outperform the market. The big funds have not increased in value as fast as blue chips. "Sure," says Joseph E. Welch, executive vice president of the $651 million Wellington Fund. "With the benefit of hindsight, an investor might have done better to put his money into some of the blue chips. But the catch is, which one should he have picked? Any sensible mutual-fund management will not claim they can perform miracles."

While no one makes a killing in mutual funds, the typical fund buyer is not looking for one. He is 55, says the National Association of Investment Companies, earns $6,542 a year, has mutual-fund holdings of $4,171, which he bought for retirement and protection against inflations. "The kind of people who buy mutual funds,'' says Edward B. Burr, executive vice president of One William Street, "intend to keep their shares ten, 20 years, or for life."

* The open-end companies, commonly called mutual funds, constantly sell stock, invest the money. Investors like them because their stock can be cashed in anytime for the net asset value per share. The "closed-end" funds sell stock only when the fund is launched. They still suffer from the bad name many funds got in the 1929 crash, when their assets went down the drain through overcapitalization or skulduggery. Moreover, their stock cannot be cashed in; it is sold like any other stock on the exchanges or over the counter, and its market value is often out of line with the actual value of the net assets.

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