12/14/98 SHOULD YOU PLUG INTO A GE FUND?

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SHOULD YOU PLUG INTO A GE FUND?

Joining the letters ''G'' and ''E'' brings to mind lots of things, from lightbulbs to jet engines. But GE mutual funds? General Electric means to change that. After nearly six sleepy years in the fund arena, the colossus is finally stirring.
In print ads that began right after Labor Day, individuals are being urged ''when you think of mutual funds, think of GE.'' A TV ad campaign begins in early 1999. Says GE Funds Chief Michael Cosgrove: ''We're actively committed to this business in terms of building the brand.'' Cosgrove hopes GE Funds will swell tenfold over the next five years, to assets of more than $40 billion--still a relative small fry, But not one the industry can ignore.
JUST AVERAGE. For fundinvestors, though, the question is different: In a universe of 5,251 mutual funds at last count, are GE's 16 anything special? So far, probably not. ''Investing with GE, you would be getting average performance. Most investors are looking for a little bit more,'' says David Masters, an analyst with Standard & Poor's Micropal (like BUSINESS WEEK, a unit of The McGraw-Hill Companies).
Average performance or not, GE is adding funds at a rapid clip. In 1998, it introduced six, the latest a small-company offering that opened Oct. 1. Next year, Cosgrove plans to launch a dozen more, including one focused on European stocks. Every fund, he argues, will enjoy an edge by virtue of GE's expertise running money for institutions. The company has been managing pension investments since 1927 and now oversees $75 billion in GE-related assets and those of outsiders.
GE's clout gives it early looks at some of the best investment ideas. The market intelligence that comes with a company garnering $99 billion in global revenues a year doesn't hurt, either. ''We have businesses everywhere around the world--from Indonesia to Japan to Australia--and we can tap into them for what is really happening,'' says GE International Equity Fund manager Ralph Layman, who oversees $9 billion. One example: a prescient warning from GE managers in Latin America in 1996 to dump stock in a Brazilian appliance maker. ''I also knew that our appliance people were going to be getting more aggressive in that market--a pretty good piece of information,'' Layman adds. Among his recent picks: Toshiba, in part because of GE's collaboration with the Japanese exporter on quality-improvement programs, and DaimlerChrysler. He expects the carmaker's cash flow to grow 8% to 10% a year, but its shares are going for just five times his estimate of 1999 cash flow.
A similar growth-at-a-reasonable-price strategy underlies GE's picks in the U.S., where portfolio manager David Carlson has been buying shares in such companies as cell-phone giant AirTouch for GE Premier Growth Equity Fund and Elfun Trusts. Short for Electric Funds, Elfun represents taxable portfolios for GE employees. To limit taxable capital-gains distributions to Elfun investors--which erode returns--Carlson says he trades rarely, a shareholder-friendly practice retail fund investors can expect, too.
As good as all this sounds, anyone tempted to give GE money should ponder two issues. One is cost. None of GE's funds can be had without paying a load of up to 5.75% or a fee to an investment adviser. Ongoing expenses are no bargain, either. Performance also remains an issue despite GE's size and global savvy. Most of its retail funds have fairly short records, so we focused on a diverse group of four that recently turned five years old (table). In the five years ended Oct. 31, none beat its benchmark, although Layman's somewhat younger international fund did so by 0.32 percentage point. Says Morningstar analyst Eric Jacobson: ''There are no real dogs, but there are no stars here, either.''
Cosgrove says GE funds aim to top their relevant market indexes, ''but we want to do it in a risk-controlled way.'' Trouble is, according to Morningstar, none of the four funds--or Layman's--has delivered what's called ''alpha''--a return beyond what's expected for the degree of risk taken. Producing alpha is no mean trick. Only one in eight U.S. stock funds have done so since 1995. But that still gives you hundreds to choose from--138 of them without loads--and something else to think over before you sign up for a GE fund.
By Robert Barker

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