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Women's Equity Fund near bottom of pack in growth

The Women's Equity Fund, begun with much fanfare a year and a half ago, has quietly racked up one of the worst records in the fund industry.

The fund aims for long-term growth by investing in shares of "women-friendly" companies, those that encourage the advancement of women in the workplace. But growth of any sort has been elusive so far.

Most growth funds are going gangbusters this year. For the two months ended May 30, growth funds gained 3.7 percent on average, according to Morningstar Inc. In the same period, Women's Equity lost money _ 3.3 percent to be exact.

For the entire year, things don't look much better. Growth funds gained 11.4 percent through May, but Women's Equity barely managed to break even, with a total return of eight-tenths of a percent.

Such a measly gain left it near the bottom of the pack. Among the 642 growth funds tracked by Morningstar, only Centurion and Janus Enterprise had worse records.

Since it began in October 1993, Women's Equity has gained 0.4 percent a year, far behind any domestic market index and the 6.8 percent average gain by all growth funds.

Not surprisingly, the fund recently changed managers, replacing Thomas Vickers. Cheryl Irene Smith, a vice president of the United States Trust Company of Boston, took over May 22.

Faced with a big task, half measures just won't do. So Smith has completely restructured the portfolio. She has reduced cash holdings to 5 percent of assets from 70 percent and replaced the fund's big stake in retailers with large positions in technology (16 percent), producer products (13.5 percent) and health care stocks (12 percent).

The biggest industry groups will change over time, she said, but will not be drastically different from the Standard & Poor's 500.

Still, she will have to produce some solid returns before investors will come running. The fund has a meager $1.6-million in assets. "Socially responsible" index funds combine two popular investment tactics. They buy the stocks in a prominent index, like the Standard & Poor's 500, but generally limit themselves to the companies in it with environmentally sound policies.

The Domini Social Equity fund was the only real choice in the category for several years. But the Citizens Index Portfolio made its debut March 2. And the fund picked up about $100-million in assets at the end of May when shareholders of two sister funds, Citizens Balanced and Citizens Growth, voted to merge with the index fund.

Sophia Collier, president of the funds' parent company, Working Assets Capital Management in Portsmouth, N.H., said the managers of the defunct funds had trouble finding companies on Working Asset's approved list of 600 stocks that matched their investment styles.

And a 1994 study by Working Assets concluded that the stocks on the approved list had significantly outperformed the S&P 500, she said. But Citizens Balanced and Citizens Growth underperformed their groups by 2.4 and 3.7 percent a year since they were started in 1992.

The new index fund owns 300 stocks, and 200 are S&P 500 companies that satisfy its managers' social criteria, such as equal opportunity programs, environmentally sound records and conservation efforts. The fund's remaining assets, at 8 percent, are invested in smaller companies with innovative products and services.

At 1.39 percent of assets, the fund's annual expenses are quite high. Ms. Collier said expenses should fall below 1 percent when Citizens Index reaches $250-million in assets. But expenses are especially important in index funds, which are passively managed and try to meet, instead of beat, the broad market's returns.

The smaller Domini fund, at $47-million in assets, has annual expenses of 0.98 percent of assets. It owns 250 S&P companies that satisfy certain social criteria, 100 other large companies and 50 more with "exceptional social characteristics."

For the three years ended May 30, Domini has gained 10.4 percent, compared with 11 percent for the Vanguard Index 500, which mimics the S&P 500. And for investors less concerned about social policies, Vanguard boasts very low expenses, at 0.2 percent of assets.