Top fund managers weather market storms by sticking to old - and proven - routes. MARKETWATCH

The cracks in the stock market, as G. Kenneth Heebner calls the 508-point plunge last October, certainly took their toll on the industrial stocks in the Loomis-Sayles Capital Development Fund. But they didn't crack Mr. Heebner's faith in his management of the $300 million, Boston-based fund.

``We started buying industrial stocks last spring, and we're looking at holding them for a year,'' he says. ``Even though they got battered, we didn't sell, because we thought the fears were unwarranted. We see dramatic earnings potential here.''

For its performance during the last 10 years, the Loomis-Sayles fund rates second on Lipper Analytical Services Inc.'s scorecard, which covers the period ending Dec. 31.

For that time, the fund grew 879.9 percent, second only to Fidelity's Magellan Fund, America's largest equity fund, which grew 1,380 percent. Magellan had assets of $11.58 billion as of Sept. 30, while Loomis-Sayles had $322.6 million.

Heebner's approach varies from other fund managers who have made it into Lipper's rankings. Richard Foulkes of Schroder Capital Management International, in London, for example, manages the $470 million Vanguard World - International Growth Fund, which ranks third on Lipper's five-year tally. He focuses on a disproportionate number of small and medium-size companies.

``By holding these smaller stocks, we hope to lower the risk of the fund,'' says Mr. Foulkes. ``We hope to find less volatility, which the larger, internationally traded stocks tend to provide. And we are long-term investors.''

And Stephen Silverman, who manages Merrill Lynch's Pacific Fund, says that Japanese insurance companies have made the fund successful. ``This area was revealed to us, we explored it, and it has become a large proportion of the fund,'' he explains.

The Pacific Fund, with assets of $490.2 million as of Sept. 30, had grown 305 percent, earning it the top spot for five-year performance. It also stands fifth for 10 years, gaining 794 percent for that period, according to Lipper. As of Dec. 31, the fund had assets of $284 million.

Whatever the differences in their approaches or portfolios, these fund managers got results, despite the unexpected upheaval in the world's stock markets last fall. Some effects are still being felt.

For most of last week, the Dow Jones industrial average experienced dramatic drops, only to bounce back up by the end of each day, but still close down. The Dow ended the week at 1,956.07 points, closing up 39.96 points, mainly on gains made Friday after the November trade deficit figures were released.

Analysts attributed the market's sluggish movement before Friday to anticipation of the figures, which showed a 25 percent decline to $13.3 billion, the best result in seven months.

Following an unexpectedly high $17.63 billion deficit for October, the dollar fell against the Japanese yen to its then lowest level since 1949. November's figures were a pleasant surprise, because observers expected a range of $15 billion to $15.5 billion.

After the market's collapse in October, Foulkes of Vanguard says, the fund created a cushion of cash, which is now 15 percent. According to Lipper, as of Sept. 30 the fund had assets of $645.5 million. ``The markets are extremely uncertain; that's why we hold 15 percent in cash and turned to cyclical and manufacturing stocks three months ago,'' Foulkes explains.

Since the market's fall, Foulkes has brought the level of economically sensitive stocks in the fund to 60 percent; these stocks, also known as cyclical issues, respond quickly to economic changes. ``I don't want all my eggs in one basket,'' he says.

In the Vanguard fund, four stocks make up 12.5 percent of the total. Three percent is in the stock of the Japanese company Mabuchi Motor, the world's largest manufacturer of micro-electrical motors. The fund holds another 3 percent in the Beecham Group, a British health-care company. The effects of a management shake-up 18 months ago are being seen now, Foulkes says. ``The excitement of the company will come through as it builds up new business,'' he claims.

A small British financial services company, Rothschild, accounts for another 3.5 percent of the fund. Foulkes chose it because the company's executives have large personal stakes in the business. ``There's a high incentive for them,'' he observes.

Another 3 percent has been invested in Toppan Printing, a Japanese printing and publishing company, which is benefiting from Japan's booming domestic economy.

Mr. Silverman of Merrill Lynch's Pacific Fund also likes domestic Japanese companies. He has about 25 percent of the fund in the domestic property and casualty companies, which are regulated and therefore produce profitable underwriting. He has added Toyo Seikan, a can and bottle manufacturer, to his list, because of its price and balance sheet.

Included in the fund's 20 or so stocks are some Australian, Hong Kong, and Singaporean issues. ``They are individual stocks that have no relation to each other,'' he says.

Silverman thinks the countries in the Pacific region will grow, if there is growth in the world. ``There can't be much growth in the United States, because it has managed to buy more than it makes, and foreign countries are not willing to lend money,'' he observes. ``To be able to buy, you have to generate money. Japan is experiencing great consumerism, and China may be one to watch,'' he adds.

Foreign companies typically do not make it into the Loomis-Sayles fund, says Heebner. ``We succeed more with companies we've been studying. We stress research, and we don't think it's reasonable for us to develop a competing data base with Japanese analysts on their companies, for example. We invest in what we know,'' he explains.

In picking stocks, Heebner says the fund will continue its aggressive concentration on a list of between 20 and 25 capital goods, metal, and chemical stocks. The fund turns over stocks 100 percent each year. ``It's an above-average figure for turnover,'' Heebner says with a laugh.

To be considered, the stock must have an appreciation potential of 50 percent or more. ``It's somewhat arbitrary,'' he says. The companies on the list benefit from the ``strength in industrial America,'' the capital goods and raw materials.

``The weaker dollar, combined with the worldwide industrial outlook and its limited capacity, will increase the demand for US goods,'' Heebner concludes. ``And worldwide, the inventories of industrial raw materials are low. Because the economic outlook for this year is decent, there should be an earnings explosion.''