Income funds often helped investors head off inflation
For the most part, 1980 was a good year for income funds. They weren't the best perfoming segment of the mutual fund market, but they weren't the worst. And the income they provided generally proved resistant to erosion by inflation, in real terms.
"Income" mutual funds concentrate on annual income instead of long-term capital growth. They'r attractive to people who need a steady flow of cash: parents sending their children through college, for example, or a retired couple.
The Investment Company Institute lists 56 mutual funds that concentrate on providing their investors with this steady stream of cash. Through the first 11 months of 1980 these funds racked up $751.3 million sales, an 8.4 percent share of the mutual fund market.
That's a healtht $100 million sales growth from 1979, though the market share was down a bit from the ten-year average.
Income fund managers say their funds remain popular because they provide a special service that will always be in demand.
"Regardless of the volatility of market levels, you'll always have people trying to lock in some level of return," says Bill Hutchinson, portfolio manager of Connecticut General Income Fund.
Dan leonard, a senior vice-president at Financial Industrial Income Fund, agrees that there will always be a need for a fund that provides a regular return without erosion of capital.
"We see a lot of people at retirment age switching over," he says.
Many managers also claim their funds are not a bad place to put your money in times of inflation. Equity income funds, in particular, point to statistics proving their funds aren't going to get caught from the rear by the consumer price index.
Return on investment at Dan Leonard's financial Industrial Income Fund rose 28 percent last year. Its five-year average growth is a shade under 21 percent.
"We try to build in capital appreciation," he says. "Income funds provide a conservative approach to investing. The upward m oves aren't as dynamic, but there's less downside risk."