Like Twentieth Century Vista, Keystone doesn't buy too many IPOs because "we're so large it just doesn't have an impact on the total portfolio," Mr. Ely said.
While flashy tech names paid off in stock funds, dull long-term U.S. Treasuries shined in fixed-income funds.
"Interest rates have essentially everything to do with it," said Ian MacKinnon, senior vice president and head of the fixed-income group of the Vanguard Group, Valley Forge, Pa., commenting on the top one-year performance of the in-house managed Vanguard Long-Term Government and Vanguard Long-Term Corporate fund, subadvised by Wellington Management Co., Boston. The $878 million Long-Term Government fund he runs is fully committed to the long end of the market, investing 100% in U.S. Treasuries, many of them 20- and 30-year bonds, "the principal benificiaries of a very frothy rally in Treasury prices since late last year."
For the $750 million Kemper Diversified fund, a July 1994 shift in apporach proved fortuitous. Until that time, despite its name, the fund had been invested 100% in high-yield securities. In the three months from July to October the fund contacted shareholders about its plan and diversified into government bonds, mortgage-backed securities, foreign and emerging markets bonds and high-grade corporates. In the year ended Sept. 30, Kemper Diversified was helped by its 20% weighting in governments. High yield stands at 29% while foreign bonds is at 20%.
"This year we were fully invested a good part of the year and made a bet on interest rates declining that has worked out for us," said J. Patrick Beimford, Kemper executive vice president and chief investment officer, fixed income.
MFS Bond, the No. 3 fund for both one- and five-year periods, also benefited from having a six-year average duration -- one year longer than its benchmark, the Lehman Aggregate. "This is a year where it's paid to be in the corporate market," said Geoffrey Kurinsky, portfolio manager of the $650 million fund, which as of Sept. 30 had 50% in investment-grade corporates and 20% in junk bonds. In a year when long-term Treasury prices moved down 125 basis points, the corporate sector did even better, outperforming the Treasury sector by almost 300 basis points, he said.