Last Year's Losers, This Year's Winners

The strongest high yield performers so far this year all posted impressive losses in the same time period last year, according to statistics from Lipper Inc. The 1999 gains came simply from holding on to those same bonds that lost in 1998.

And the rest of this year may not be so great either, some investors acknowledged.

According to one portfolio manager, recovery from last fall's debacle began as early as the fourth quarter of 1998.

"Losses weren't losses at all. When you have something at 100 and the market goes down to 80, and you don't sell and hold on to everything, and then the market goes back up to 110, then you turn a profit," said one mutual fund manager.

Dreyfus Corp.'s Dreyfus High Yield Fund, managed by Roger King, has been this year's strongest performer, with 17.11% gains. During the same period last year, the fund was down 8.01%.

"We did poorly last fall. Since we fell so far down last year, we had a bigger bounce back than most," said King.

King does not attribute this year's success to new investment strategies or a stronger market. Instead, he says, the Dreyfus High Yield Fund was heavily overweighted in the volatile telecom industry, and reaped gains in that sector. Also, the fund was able to profit off strong performances from warrants, investing in such names as Rhythms NetConnections and EchoStar.

However, some managers wonder whether fixed income funds can continue their strong performance through the remainder of the year. New issues continue to drop off the fall calendar and capital outflows have not yet ceased.

"I don't see the fund going anywhere in the next few months, right along with the market," said King.

Rounding out the top five mutual funds were Loomis Sayles High Yield, with a return of 12.81%; Fidelity Capital, 11.06%; Loomis Sayles Fixed Income, 9.15%; and John Hancock A Fund, 8.88% (see complete chart of top 50 funds on opposite page).