NEW YORK (AP) _ A New England shoe chain walked to the top of the Forbes 1989 list of the ''200 Best Small Companies in America,'' outpacing insurers, specialty retailers and restaurants that dominated the rankings.

Boston-based J. Baker, a newcomer to the list, took the honors with the highest return on equity - a five-year average of 100 percent, Forbes reported in its Nov. 13 issue, on sale Monday.

Houston-based Allwaste, which sells pollution control equipment and services, came in second with a five-year average ROE of 77.1 percent. Third was Golden Valley Microwave Foods, of Edina, Minn., maker of popcorn and breakfast foods, with a 59.1 percent ROE. Both also were newcomers.

Forbes evaluated more than 4,000 publicly traded companies nationwide with sales in the latest 12 months of $5 million to $350 million for the 10th annual list. Besides high return on equity, companies were graded on ''consistency in earnings growth and balance-sheet strength,'' Forbes said.

Return on equity, considered one of the best yardsticks of a company's performance, shows annual profits as a percent of net worth. ROE is calculated by dividing stockholders equity into net income.

The most profitable company on the list was Franklin Resources, a mutual fund management concern based in San Francisco and ranked fifth with a 53.5 percent five-year ROE. Franklin's profit rose 17 percent to $74.25 million in the latest 12 months.

Franklin also would have given investors the biggest bang for the buck - $10,000 invested in the company five years ago would be worth $132,528 today, Forbes said.

Among the entire group, insurers had 15 entries, followed by specialty retailers with 12 and restaurants with 11.

California led all states with the most companies on the Forbes list, 23. New York and Chicago were the top cities, each with 10, followed by Dallas, Los Angeles, Minneapolis and Philadelphia, with six each.

Forbes first published the best small company list in 1979 under the title ''Up and Comer.'' An investment of $10,000 in each of the top 100 companies that year would today be worth $4.8 million, a compound annual rate of 17 percent, the magazine said.

By Forbes' calculations, the same amount invested in the Standard & Poors 500 would now be worth $3.2 million.

Rounding out the top 10 were: Tech-Ops Landauer, Chicago, (radiation monitoring services), with 54.5 percent ROE; Franklin Resouces; Quiksilver, Anaheim-Santa Ana, (casual sportswear), 52.7 percent; Colonial Group (Class A), Boston, (fund management), 50.9 percent; One Price Clothing Store, Spartanburg, S.C., (discount apparel stores), 47.4 percent; International Dairy Queen (Class A), Minneapolis, (fast-food restaurants), 42.8 percent; and Shorewood Packaging, New York, (packaging materials), 39.9 percent.

Forbes said it eliminated from consideration limited partnerships, estate investment trusts and companies with stocks that sell for less than $5 or have a small amount of publicly traded stocks.