SHORT INTERESTS: TIPS, TRENDS, OBSERVATIONS

Shedding light on tax bite

Despite increased attention to mutual funds’ tax efficiency, too many fund sponsors — especially those whose portfolio managers favor high turnover strategies — would rather let investors figure after-tax returns on their own.

Nevertheless, during an anonymous poll of 90 executives at a National Investment Company Service Association conference in mid-June, nearly two-thirds agreed that fund companies should disclose after-tax returns based on a reasonable taxpayer profile, according to Management Practice Bulletin, a New York newsletter. Some funds are already reporting returns on a theoretical after-tax basis, and many of the polled executives said more firms would likely follow.

All Betz are off

Jim Stratton, whose top-rated $63 million-asset Stratton Growth fund was launched in 1972, doesn’t add stocks to his 36-name portfolio too often, but when he does, he treads carefully. Sometimes too carefully. Like when he set out to buy a piece of chemical company BetzDearborn Inc. of Langhorne, Pa., which he pegged as a likely acquisition. Unfortunately, Hercules Inc. beat him to the punch, acquiring the company for $3.1 billion in cash and assumed debt. The price of $72 a share was double the stock’s pre-announcement price of nearly $36 on July 29. “We were all set to buy. The only thing worse is if we had written the tickets. I never felt so bad about an opportunity missed.”

Unbowed, Mr. Stratton is on the prowl for other takeover targets: manufacturing companies with market capitalizations between $2 billion and $5 billion that trade at 50% below their 1997 highs.

Already, he says, “We found another Betz.” In the last couple of weeks, he’s been buying Diebold Inc. of Canton, Ohio, the leading manufacturer of automated teller machines and smart cards, at around $25 a share. This time, he’s sure to pounce a little faster.

Payoff for the patient

Are we seeing a kinder and gentler Wall Street? David Tripple, chief investment officer of Boston’s Pioneer Group Inc., seems to think so.

While eight of the 10 largest one-day index point declines in the Dow Jones Industrial Average took place in the 1990s, eight of the 10 biggest percentage drops actually occurred in the 1930s or earlier, according to Mr. Tripple.

“On this evidence, short-term risks are less than they used to be,” he observes.”However, the market indices continue to fluctuate far more widely than the intrinsic value of the companies they represent. That is why patient investors, who buy good companies when they are temporarily out of favor, can do very well.”