Reporter associate: D. Jacqueline Smith

For every newspaper headline today, there’s a new mutual fund tomorrow, or so it seems. Consider these hip new offerings, all to be launched over the next several months:

► The Domini Social Index Fund, offered by Signature Financial Group in Boston, which promises to be the first “socially responsible” index fund. It will invest in about 400 companies with policies deemed ethical by investment adviser Amy Domini.

►Scudder New Europe Fund, which will buy shares of small to medium-size European companies in hopes of capitalizing on the recent tumultuous events across the Atlantic.

►Shearson Lehman Hutton’s 1990s Fund, which will hold a grab bag of stocks that reflect such trendy themes as the aging of the U.S. population and the rebuilding of the nation’s creaky infrastructure.

“The only type I haven’t seen yet is a socially irresponsible fund,” quips Jonathan Pond, editor of the Wiesenberger Mutual Funds Investment Report. “But it’s probably just a matter of time.”

The hucksters are right on one count: long-term economic and social changes do produce opportunities for big profits — if you are shrewd enough to get in early. Consider the lucky folks who played their hunch that Japan would become an increasingly dominant world economic power by investing in the Japan Fund back in 1980. Since then, the fund has shot up 663.9% — the third-best fund performance of the ’80s.

To find the trends that stand the best chance of delivering heady returns to investors in the ’90s, Money interviewed more than two dozen economists, portfolio strategists and investment advisers. In addition to identifying six broad themes that are likely to shape society during the decade, the pros recommended more than a dozen mutual funds that seem most likely to prosper from the trends over the next five to 10 years.

Why funds? Simply put: they offer you the least risky way to invest in emerging social and economic trends. With funds, you get low-cost diversification as well as professional managers, who are generally better able than individual stockholders to recognize when a trend is petering out and that, therefore, the time has come to bail out. To reduce your risk further, you can use dollar-cost averaging to invest in these funds. With this technique, you put in the same amount of money each month, ensuring that you buy more shares when prices are low than when they are high.

Most of the funds recommended by the experts are diversified growth funds that let you bet on a few trends with one investment. We discuss each fund in full only in connection with the one trend favored most by its manager; the fund’s prospectus will give you insights into its other holdings.

If you are convinced that a particular industry will take off and are willing to take bigger risks, you might consider a sector fund. These funds, which invest in a single industry, offer the possibility of big gains—or big losses. “Before investing in them, you should already have a well-diversified portfolio of about $10,000,” warns Jim Stack, editor of the newsletter InvesTech Market Analyst. “An aggressive investor can then place up to 30% of that money in one or more sector funds.”

A look at the investment themes and the funds that seem most likely to deliver on them follows, (Phone numbers are listed once for each fund group. Unless otherwise noted, total returns are for calendar year 1989. Asset sizes are provided for funds under SI00 million.)

►The greening of America: Cleaning up on the environmental cleanup

Oil spills, acid rain, the greenhouse effect and the depleted ozone layer — all are fueling a born-again environmental movement that should gather righteous steam as the nation moves toward the next millennium. Analysts project that annual spending on products and services to clean up the environment will double by the mid-1990s from about $100 billion in 1989.

Among the biggest beneficiaries: the $25 billion environmental-services industry, made up of firms involved in solid-waste management, pollution control and toxic-waste disposal. “Many of these companies are going to grow about 20% annually over the next few years,” says Lawrence Greenberg, manager of the $78 million Fidelity Select Environmental Services (up 17.2% since June 29; 2% load; 800-544-6666), one of at least four funds that invest primarily in environmental stocks.

Currently, argues Stack, these sector funds are especially risky because the environmental industry has few established companies, and they trade at high prices. Thus he recommends that you opt for a diversified growth fund with a solid performance record as well as an ecological bent. One of the best choices: the Janus Fund (no load; 800-525-3713; up 46.3%), which placed ninth with a 20.3% average annualized return in Money’s February rankings of the past decade’s top-performing equity funds. Janus now has about 9% of its assets in solid-waste companies such as Wheelabrator and Chambers Development. “We’re running out of landfill space,” notes fund manager Jim Craig. “So companies that own landfills or help dispose of waste could double in value in three or four years.”

You can also get environmental exposure through so-called socially conscious growth funds, which invest according to ethical guidelines. The fund with the most direct environmental commitment is seven-year-old, $12 million New Alternatives (5.6% load; 516-466-0808; up 26%), which invests in energy conservation and environmental service-related companies.

►The Information Age comes into its own: Ringing up returns in cellular

In a world increasingly linked by fax, modem, phone and computer, the telecommunications industry seems headed for another decade of torrid growth. Consider the fledgling cellular telephone business. Although cellular networks cover only about 1.8% of the country today, analysts predict that roughly 15% of the U.S. will be so equipped by the year 2000. As a result, the industry, which had sales of $4 billion in 1989, should grow at a 27% annual clip over the next four to five years.
Although the prospect of a phone in every car already has

carried many cellular stocks to lofty prices, analysts think they can go much higher — perhaps up another 30% annually over the next five years. Portable-phone junkies can reduce the risks inherent in such high fliers by getting their cellular fix through growth funds. One top performer is Founders Special (no load; 800-525-2440; up 37%), which has 12% of its $75.3 million portfolio in telecommunications companies, chiefly those with fast-growing cellular businesses.

More conservative investors can get in on the telecommunications revolution through funds that hold the shares of less glamorous but steadily growing businesses such as the regional Bell networks. In an economic downturn, analysts say, these firms should prove more recession resistant than cellular firms. One fund well positioned in this area, according to Don Phillips, editor of the newsletter Mutual Fund Values, is Oppenheimer Discovery (4.75% load; 800-525-7048; up 34%). Manager Donna Calder currently has about 15% of the fund’s $55 million portfolio invested in Southwestern Bell and Pacific Telesis, two successful Bell operating systems.

►Going global: Cashing in on the trade boom and the peace dividend

If the ’80s were Japan’s decade, the ’90s may well be Europe’s, as the 12-nation European Community moves steadily toward a single market by 1992 and tantalizing new markets open up among its Eastern bloc comrades. Indeed, economists predict that international trade, which grew at an annual rate of 5.6% throughout the 1980s, will jump by 13% this year and power ahead at a double-digit pace for the next few years.

The opportunities in overseas markets, coupled with the shrinking U.S. share of the world equity market — today the value of all stocks traded in the U.S. amounts to less than a third of the global equity market, vs. more than 50% in 1980 — make a compelling case for American investors to keep 20% of their assets in foreign stocks. Says Ralph Wanger, manager of the Acorn Fund: “For any investor not to be invested outside the U.S. in the 1990s would be like an investor in 1980 not being invested outside New Jersey.”

One timely strategy for global investing: think small — small emerging growth companies, that is. “In the ’90s, we can expect a much higher rate of growth and greater price appreciation from these foreign firms than from big, established businesses,” says Ken Gregory, editor of the newsletter L/ G No-Load Fund Analyst. “Many of the larger stocks are now so widely followed that it’s difficult to find hidden values.”

One mutual fund that focuses exclusively on small foreign stocks is $62 million T. Rowe Price International Discovery (no load: 800-638-5660; up 41.7%), which counts companies such as IGB, a Malaysian real estate investment company, and Singapore Marine, a shipbuilder, among its biggest holdings. But you can also get a hefty helping of emerging foreign enterprises with Vanguard World International Growth (no load; 800-662-7447; up 24.7%), which invests in small as well as medium-size companies. Its current holdings include Otra, a Dutch building supplier, and Joshin-Denki, a Japanese consumer electronics chain.

Investors willing to take above-average risks might consider regional funds, which have recently outperformed their more diversified brethren. The best region, many advisers believe, is Western Europe, where the economy is expected to grow by 3% annually over the next five years, compared with 2.2% for the U.S. Sheldon Jacobs, editor of the newsletter No-Load Fund Investor, particularly likes $26.9 million Financial Strategic European (no load; 800-525-8085; up 24.3%).

If you are reluctant to load up on foreign stocks, or if you can afford to invest in only one mutual fund, you might want to choose a well-managed domestic fund with substantial overseas holdings. For example, portfolio manager Peter Lynch of Fidelity Magellan (3% load; up 34.5%), whose 28.4% compound annual return over the past decade made it the top-performing equity fund of the ’80s, recently held a 15% stake abroad. And Wanger of Acorn (no load; 800-922-6769; up 25%) now keeps 20% of his small-stock fund’s portfolio in overseas equities. He is looking to boost that percentage to 30% as opportunities arise.

Aging boomers ’ saving and spending habits will boost the profits of industries that cater to their needs and whims — from specialty retailers to entertainment and financial services firms.

►The baby boomers hit fortysomething: Making money on midlife crises

Tired of hearing about yuppies? Take heart: those annoying urban professionals aren’t so young anymore. The leading edge of the baby-boom generation has already entered its early forties. And by the year 2000, the number of people ages 45 to 54 will have jumped a whopping 46%. the biggest increase in any age category. “This age wave undoubtedly will have a profound impact on all aspects of the American economy, particularly because the baby boomers will be entering their peak earning years,” says Thomas Doerflinger, investment strategist at Paine Webber. He expects boomers’ saving and spending habits to boost the profits of the industries that cater to their needs and whims — from specialty retailers to entertainment companies to financial services firms.

Several top-performing funds lately have been moving their portfolios to an aging baby-boomer beat. Delaware Del- cap I (4.75% load; 800-523-4640; up 34%) keeps 10% of its assets in entertainment stocks such as MCA and Paramount. And the Merrill Lynch Fund for Tomorrow B (no load; up 28.9%) has virtually all of its portfolio in stocks that reflect baby boomers* tastes, including Coca-Cola, American Express and Sara Lee.

Baby boomers who postponed childbearing until their thirties and forties will join other new parents to create a ’90s baby boomlet. The under-18 population, which shrank slightly during the ’80s, is expected to grow by 2 million. The new parents—along with the growing number of boomer grandparents — should boost demand for toys and children’s clothes. Doerflinger predicts. Babson Enterprise (no load; 800-422-2766; up 22.5%), a $83 million small-stock fund that looks for value among trendy, offbeat stocks, has invested in Wisconsin Toy Co., a $60 million retailer that buys up unsold inventory from manufacturers and sells it at big discounts. “Its earnings are likely to grow about 15% to 20% over the next three to five years.” fund manager Peter Schliemann says.

►Rebuilding Amerito: Investing in the country’s infrastructure

The most chilling reminder yet of the urgent need to rebuild the nation’s long-neglected infrastructure came during last fall’s earthquake in California when a section of the Nimitz Freeway in Oakland collapsed, killing 42 people. Many experts say the tragedy might have been averted had the antiquated highway been reinforced.

Repairs and renovations of the country’s highways, bridges, tunnels and other structures will require a boost in capital spending by state and local governments from $95 billion today to $156 billion in 1995, according to the Government Finance Officers Association, a professional organization. Those dollars should benefit a variety of businesses — chief among them contractors, steel companies and equipment makers. “The returns on these capital-goods stocks could outpace consumer shares by 75% over the next three to four years.” contends Michael Landry, president of Mackenzie Investment Management, a fund company in Boca Raton. Fla.

Although the timing is not yet right for heavy wagers on companies involved in rebuilding the infrastructure — these cyclical concerns could get hammered in a recession — you might consider a small investment in $45 million Mackenzie American (8.5% load; 800-456-5611; up 16.3%), currently the only mutual fund fully committed to the infrastructure theme. “We’ll invest in anything that’s too heavy to lift or that comes out of the ground,” says Landry. And the fund’s tendency to increase its cash investments in uncertain times could cushion any short-term stock losses.

►With the 26% jump expected over the next 10 years in the number of people age 75 and older, health-care spending should climb from 11% to 15% of the U.S. economy by the end of the century.

Alternatively, you might make a modest investment in a diversified fund that owns stocks in infrastructure niches. For example, Andrew Massie, manager of the $57.5 million Counsellors Capital Appreciation Fund (no load: 800-888-6878: up 26.8%), is investing 5% of his portfolio in companies that build electrical plants. “In some regions we’re running short of electrical capacity, which will require a lot of plant construction,” Massie says.

►The graying of America: Profiting from the health and longevity of senior citizens

Over the next 10 years, the number of people 65 or older will climb by nearly 1I %, while the 75-and-over set will jump by 26%. Medical advances are making this age wave possible: in turn, the larger elderly population will boost demand for health-care products and services. As a result, analysts predict the $650 billion health-care industry will grow 10% to 15% annually over the next five years.

In anticipation of this bonanza for medical products and services companies. several growth fund managers have loaded up on health-care stocks. For example, Columbia Growth (no load: 800- 547-1707: up 29.4%) currently keeps 13% of its portfolio in companies with a medical mission, while Founders Frontier (no load: up 44.3%) has more than 15% of its S47.8 million in assets in such stocks.

Moderately aggressive investors might do well to put some money in a sector fund that invests solely in health-care companies. Your best choice, says Phillips, is $79.9 million Vanguard Specialized Health Care (no load; up 33%), which carries a below-average risk rating as measured by Mutual Fund Values. “Health-care spending now makes up about 11% of the U.S. economy,” points out manager Edward Owens. “With the aging population, it could reach 15% by the end of the century.” At which point, investors can start betting on the trends that will sizzle by 2010.