09/16/96 A MUTUAL FUND STAR FALLS TO EARTH

A MUTUAL FUND STAR FALLS TO EARTH

RICHARD STRONG, long celebrated as an investment risk-taker par excellence, is seeing the downside of his approach. The Strong Discovery Fund, which he has managed since its 1987 inception, has taken a pratfall.
By yearend 1995, it had grown an average 21.6% annually over five years, vs. 16.5% for the S&P 500. In 1991, it ranked near the top of all mutual funds in total return, according to Morningstar. Now, it's near the bottom. Discovery is down 10.5% for 1996; the S&P 500 is up 5%.
This year, Strong made two errors with Discovery, an aggressive-growth fund. Early on, he predicted a downturn, so he bought long-term Treasuries and shorted S&P 500 futures. But the bad times didn't come. At midyear, he loaded up almost entirely on equities, just before the stock market dropped. Some picks have been just plain rotten, such as Medaphis. On Aug. 15, the billing-services outfit plunged 60% after it said earnings wouldn't meet analysts' expectations --losing Discovery $3.8 million.
Discovery is the only one of Strong's 29 funds he runs himself. ``I've made decisions that weren't correct,'' says Strong, 54, who adds that his long-term track record is good. Meanwhile, he has decided he needs help and has brought in Charles Paquelet to co-manage Discovery. Paquelet ran the Strong Small Cap Fund with better success: It's up almost 25% this year.
EDITED BY LARRY LIGHT By Lisa Sanders