FundAlarm - Highlights & Commentary Archive

Highlights and Commentary

By Roy Weitz

(Originally posted May 1, 2001) [Archive Table of Contents]

Five years, and little to show: Over the past 60 months, a total of 179 funds in the FundAlarm database have posted a negative total return.....In one of our Specialty fund categories -- Metals -- a negative five-year return was common, and it was even possible for a Metals fund to outperform its benchmark with a negative return.....In all of our other categories, a negative return simply meant that you lost money.....Here's how this month's database breaks out, by category:

Benchmark category	Total # of funds*	# of funds with a negative 60-month return
Large-cap	959	10
Mid-cap	259	11
Small-cap	187	10
Balanced	236	3
International	487	113
Specialty:
Communications	12	0
Financial	19	0
Health	24	0
Metals	25	25
Natural Resources	34	3
Real Estate	46	1
Technology	35	3
Utilities	67	0

* In existence at least five years
The accompanying page lists each fund with a negative 5-year return, by category.

If we asked you to describe the legal structure of your mutual fund, you'd probably give us a blank look, and that's exactly the way it should be.....Generally, there's no reason you ever need to know this.....But, as one FundAlarm reader recently pointed out, a fund's legal structure isn't always irrelevant.....Case in point: The beleaguered Heartland funds.....(If you're joining us late in the game, you'll need to know that on October 13, 2000 Heartland revalued bonds in two of its muni-bond mutual funds, Heartland High-Yield Municipal Bond and Heartland Short Duration High-Yield Municipal. In one day, the net asset values of these funds dropped by 69% and 44%, and a huge class action lawsuit against Heartland is currently brewing).....Legally, Heartland is organized as a "series company," which means that each of the eight Heartland funds is related -- somewhat like the branches of a tree, with an entity called "Heartland Group, Inc." as the tree trunk.....Heartland's Articles of Incorporation provide that the assets of each series belong to that series, subject only to the rights of creditors.....And that's the rub.....If the assets of Heartland's devalued muni funds aren't sufficient to cover the claims of the class action lawsuits, "there is a possibility that the assets of the other series of Heartland could be subject to such excess liabilities"......That quoted language (without the italics) is lifted directly from the most recent Heartland prospectus, and it should give every investor in every Heartland fund some cause for concern.....Reliable sources tell FundAlarm that Heartland has $10 million of liability insurance to cover the claims arising from the devaluation debacle, and that won't be enough money.....Heartland's outside accounting firm will probably end up paying some big bucks, and owner Bill Nasgovitz will also end up quite a bit poorer......Chances are, other funds in the Heartland series won't need to be tapped.....But if lawyers start looking for pockets to pick, do you really want to be an investor in any of the Heartland funds?

And who can forget this little Heartland goodie?

[From the December, 2000 Highlights & Commentary]

On September 29, 2000 the sinking Heartland muni funds desperately needed cash, apparently to meet fund redemptions.....The State of Wisconsin Investment Board (SWIB), which manages Wisconsin's public-employee pensions, stepped forward to buy $8.3 million of Heartland's distressed securities.....And how did the SWIB know that Heartland was looking to sell these bonds?.....It turns out that the Chairman of the Wisconsin Investment Board, Jon Hammes, is one of Heartland's paid, outside directors, and Hammes told the folks at Heartland whom to call at the SWIB.....(Hammes says that he took no further part in the SWIB decision, and the SWIB swears that it got a great deal on the Heartland bonds).....When he's not watching the Heartland funds crash and burn, Hammes also runs the Hammes Co., a major real estate developer in the Milwaukee area.....Hammes Co. owns a 68,000 square-foot building in downtown Milwaukee, and the anchor tenant of this half-vacant building just happens to be Heartland.....So, if Heartland were to go belly-up, Hammes would not only lose his Director's job, but he'd also lose a major tenant.

As it turns out, one of the bonds that the SWIB bought from Heartland was issued by a company called Heritage Housing Development, Inc., to finance ten Alzheimer's nursing homes.....Only three of these projects are currently operating, and Heritage has stopped making all interest and principal payments.....You'd think that even Heartland would have been able to offer the SWIB a better bond than this one -- and that thought has also occurred to at least one Wisconsin State Senator.....According to this Senator, "The concern [all along] has been with the insider nature of this deal and the fact that it really didn't pass the smell test at the beginning".....An investigative hearing is possible later this year.
"Heartland moves on defaulted bonds," Kathleen Gallagher, Milwaukee Journal Sentinel, April 10, 2001

Every few months, it seems, the NASD fines another broker for improperly selling "B" class mutual fund shares.....The most recent broker to be publicly slapped was Stifel, Nicolaus & Company, of St Louis, MO......What is it about "B" shares that makes them so susceptible to abuse?.....For one thing, "B" shares currently outsell "A" class shares by about a four-to-one ratio .....But it's not just volume that accounts for the problems with "B" shares.....There's an inherent conflict of interest in the structure of share classes, and the "B" class is where the conflict is most evident.....First, we need to take a quick look at the alphabet soup of load-fund investing

"A" class shares typically charge a front-end load....."A" shares may also impose a 12b-1 fee, but it's generally the lowest 12b-1 fee of any share class....."A" shares are also the only ones sold with "breakpoints," which are basically volume discounts.....The first breakpoint for most load funds is $50,000.....If you invest up to $49,999, you pay the highest front-end load (say, 5.75%).....But if you invest even one dollar more, you qualify for a lower load (4.5%) on your entire purchase.....Loads continue to drop at various breakpoints, and loads loads typically disappear entirely at $1,000,000.
"B" class shares don't charge a front-end load, but they do impose hefty 12b-1 fees.....Class B shares also normally impose a contingent deferred sales charge (CDSC), which investors pay when they sell their shares.....The CDSC normally declines over a number of years, and it's eventually eliminated if the shares are held long enough.....Once the CDSC is eliminated, Class B shares typically convert into Class A shares.....At that point, the 12b-1 fee paid by both classes is identical.
"C" class shares typically charge the maximum permissible 12b-1 fee (1%). Many also carry a 1% or 2% CDSC that lasts for a year or two.

When a broker sells an "A" class share, the broker gets paid from the front-end load.....When a broker sells a "B" class share, there's no front-end load, so the fund company reaches into its own pocket to pay the broker, and the fund company typically pays a 4.0% commission.....Now, try to put yourself in the shoes of a broker selling load mutual funds.....Let's say your client has $250,000 to invest in XYZ Fund.....At $250,000, your client has already passed several breakpoints, and your client can probably invest in the "A" shares of XYZ Fund for a 2.5% or 3.5% front-end load (these shares also carry a relatively small 12b-1 fee).....On the other hand, if you can sell your client the "B" shares, you'll receive a full 4.0% commission -- and your client will be on the hook for several years of hefty 12b-1 fees, plus a potential CDSC .....That, in a nutshell, is where the abuse comes in.....Brokers continue to push "B" shares on some clients, even when it's not in the client's best interests, because brokers earn more from certain sales of "B" shares.....If you recently made a large purchase of "B" shares, and you weren't advised about the "A" share alternative, you might want to have somebody take another look at your transaction.....You could end up with those "A" shares after all, and it won't cost you a penny.

Something else to watch out for: Many fund companies won't even sell "B" class shares to someone who's investing more than $250,000, for the reasons discussed above.....So, unscrupulous brokers break the sale into smaller units, or multiple funds, to evade the $250,000 limit.

And, sometimes, it's not only investors who get screwed by "B" shares: As we noted above, brokers who sell "B" class shares receive their commission directly from the pocket of the mutual fund company.....Then, over the next several years, the mutual fund company recovers the commission by tapping into the 12b-1 fee that it charges "B" class investors.....Usually, there's more than enough 12b-1 fee to go around, and the fund company eventually makes itself whole.....Occasionally, however, the fund company is left holding the bag, and that's exactly what has happened to the Munder funds.....The Munder funds are a subsidiary of Comerica, and during 1999 and 2000 it appears that Munder paid brokers about $100 million in commissions for selling three of its "B" class funds -- Munder Net Net, Munder International NetNet, and Munder Future Technology.....Recently, however, these funds have been losing assets like a leaky bucket, which means that Munder's 12b-1 income has also been dropping dramatically.....Now, Munder realizes that it's never going to recover some of those "B" class commissions out of its 12b-1 fees.....When parent company Comerica announced its first quarter earnings on April 17, there was a special $26 million write-off for "deferred distribution cost impairment" -- in other words, "B" class commissions that Munder (and parent Comerica) are never going to recover.....Munder is entitled to about $54 million in commission recoveries that are still on the books.....But unless Munder's asset base starts growing soon, most of these commissions will probably end up as losses, too.
"Munder's Tanking Tech Funds Take Toll on Parent," Gavin Daly, Ignites.com, April 19, 2001

Speaking of conflicts of interest: Financial services companies potentially have a big conflict when they establish a pension plan for their employees.....Financial services companies are in the business of managing money, and employee pension plans contain bagfuls of money, so it's only natural that the financial companies would like to earn their share of the fees.....Federal law, however, requires that retirement funds must be managed solely for the benefit of workers and retirees.....New York Life has apparently stepped into this mess in a big way.....According to an ongoing class-action lawsuit, New York Life invested about $1.8 billion of employee defined-benefit pension plan money in the Eclipse family of mutual funds, which New York Life also happens to manage.....In other words, New York Life earned fees on almost $2 billion of pension plan assets, and also provided seed capital for several of its Eclipse funds, while supposedly meeting its fiduciary obligation to employees.....Lawyers for the employees claim that defined-benefit pension money is almost always turned over to managers of separate accounts, and is almost never invested in mutual funds, especially when those funds are managed by the employer......We're not exactly sure how they did the math, but plaintiff's lawyers also claim that New York Life effectively charged its workers up to 25 times the market rate for managing their pension funds.....Meanwhile, New York Life has quietly pulled that $1.8 billion of employee retirement money out of the Eclipse funds.....As a result, several Eclipse funds have lost up to 80 percent of their assets.....Fortunately, the Eclipse funds have decided to return the New York Life retirement money in kind, which means that the funds won't incur huge transaction costs, and the remaining Eclipse shareholders won't be saddled with massive capital gains from stock sales.....Still, many Eclipse funds now have much smaller asset bases.....Unless New York Life voluntarily eats some fund expenses, Eclipse fund owners can expect expense ratios to rise.
"New York Life Moving Its Pension Out of Its Mutual Funds," Danny Hakim, NYTimes.com, April 19, 2001

Back on January 3, 2001, the Fed unexpectedly lowered interest rates, and PBHG Select Equity jumped 17.8% for the day (by comparison, E*Trade Technology Index fund returned 16.8%).....On April 18, the Fed lowered rates again, and this time PBHG Select Equity gained just 5% for the day, compared to 10.3% for the E*Trade Technology Index fund:

Fund	% Gain on 1/3/01	% Gain on 4/18/01
PBHG Select Equity (PBHEX)	17.8%	5.0%
E*TRADE Technology Index (ETTIX)	16.8%	10.3%

In other words, on one big day in January, PBHG Select Equity outperformed even a technology index fund.....On another big day in April, PBHG returned less than half of the tech index.....If you own PBHG Select Equity, you don't have to look any further than this table to know that your fund has undergone some major changes since the first of the year......A little digging reveals that the tech weighting of Select Equity has indeed dropped, from about 57% to 31%.....As we suggested several months ago, examining the one-day performance of your fund can be like an X-ray....Even if your manager won't tell you what the fund owns on any given day, the market will often give you a pretty good idea.

Another good example of what you can learn from one-day returns: Take a look at the April 18 performance of two other funds -- Van Wagoner Emerging Growth and Millennium Growth:

Fund	% Gain on 4/18/01
Van Wagoner Emerging Growth (VWEGX)	14.8%
Millennium Growth (MGFQX)	0.1%
E*TRADE Technology Index (ETTIX)	10.3%

According to Morningstar.com, both of these funds have committed more than 70% of their assets to tech stocks over the past three years, even though neither is officially classified as a tech fund*.....Based on April 18 performance, it's pretty clear that Van Wagoner Emerging Growth is still a pedal-to-the-metal, tech-heavy offering that's going to experience all the highs (and lows) of the tech market in general......But what the heck is going on at Millennium Growth?.....If we owned this fund, we'd definitely want to know why it lagged the market by so much on such a good day.....One possibility is that manager Robert Dowlett has cut way back on his tech holdings.....Another possibility is that Dowlett still holds a lot of tech, but he's not in the sweet spot of the market......We tried to figure out what was going on by visiting the Millennium Web site, but the portfolio holdings of Millennium Growth hadn't been updated since September 30, 2000, and the site had no other relevant information.....In this case, we'd probably just give Dowlett a call and ask him to explain......That's one of the advantages of a small fund: The manager might even talk to you.
* "Smoking Out Closet Sector Funds," Dan Culloton, Morningstar.com, April 5, 2001

No ego here:

"Of course [Benjamin] Graham and [David] Dodd weren't really that good...The guy who was really good in my book was me."

---Martin Whitman of the Third Avenue Funds,
quoted in Investment News, April 16, 2001

FolioFN (left) and Morningstar (right)
try to determine who's at fault

FoiloFN is a Web site that helps investors put together baskets of stocks and mutual funds.....For investors who don't want to assemble their own portfolios, FolioFN offers several "ready-to-go" baskets, and that's where the company recently got into some embarrassing trouble.....Back in September, based on information from Morningstar, FolioFN added three closed-end mutual funds to its ready-to-go corporate bond folio, which was described as "investment grade".

About six months after these bond funds were added to the "investment-grade" basket, FolioFN discovered that two of the funds actually invest in junk bonds and low-quality leveraged loans, while the third fund doesn't invest in corporate fixed-income at all (it's a mortgage fund).....FolioFN removed the mislabeled funds from its basket, but not before blaming Morningstar for the screw-up: According to FolioFN, "We relied on an industry leader" to determine how to classify the funds......For its part, Morningstar contends that it was up to FolioFN to see that the holdings of its baskets were appropriate for its investors.
"FolioFN Marketed Risky Bond Funds As High-Quality," Elizabeth Stanton, Bloomberg.com, April 4, 2001

Bad timing: Just as FolioFN was discovering its little junk bond problem (above), the Investment Company Institute, the trade association for the mutual fund industry, was petitioning the SEC to regulate folio companies as mutual funds.....This kind of regulation would be a disaster for folio companies, and it would probably cripple their business -- which wouldn't bother the Investment Company Institute (ICI) one bit.....The legal issues are complex, and it's not clear what the SEC will ultimately decide.....But if the folio companies lose this battle, they'll mostly have themselves to blame.....As the ICI petition almost gleefully points out, the folio company Web sites are full of language that compares folios directly to mutual funds, while practically boasting that folios aren't subject to the same regulations as mutual funds.....With an Internet arrogance that seems more appropriate to 1999, the folio companies seem to think that their idea is automatically a winner just because it's new.....The lawyers at the ICI simply went to the folio company Web sites, copied the hype, and stuck it in their petition.....Now, the words of the folio companies probably make the best case for their own regulation.....Talk about a lawyer's dream.

Why don't we believe this?

	"You have a better chance of getting hit by lightning on a golf course than being mistreated by an investment firm."
	Alan Davidson, president of the Independent Broker-Dealer Association, quoted in Investment News, April 9, 2001

Personally, we always vote our mutual fund proxies, and our approach is very simple: If the fund is asking for a change in the rules, and the change isn't clearly beneficial for us as a shareholder, we always vote "No".....How do we know if the change is beneficial?.....We put the burden on fund management to make the case for change.....We also define "beneficial" very narrowly: If the proposed change won't save us money within the next 12 months, or boost our return, why should we say "Yes"?

Russell Hoffman is a long-time friend of FundAlarm, and he runs a fee-only investment advisory firm on Bainbridge Island, WA (yes, it's a hardship assignment, but someone has to do it).....Russell recently got worked up over a proxy solicitation from the Citizens funds, and he sent a well-reasoned letter to clients of his firm (Managed Capital Growth) urging several "No" votes.....If you own a Citizens fund, or if you would like to see what kind of tricks fund companies are up to these days, check out Russell's letter on the accompanying page.

The IPS iFund Death Watch:

	"The irreverent mutual fund website FundAlarm.com is running an unusual contest. Its publisher, Roy Weitz, will give a $100 Amazon.com gift certificate to the reader who e-mails him with the date nearest that on which the IPS iFund, a yet-to-launch fund that will allow shareholders to determine its holdings, will go out of business."
---Investment News, David Hoffman, April 23, 2001

Well, the contest is closed, and you can check the accompanying page to see how everyone voted.....Halloween (October 31) was the most popular death date, which suggests that a sense of irony is alive and well among FundAlarm readers.

Here's what Greg D'Amico, president of IPS Funds, told Investment News in defense of the upcoming IPS iFund:

"The iFund is all about network economics. It's about complex adaptive systems -- the biological approach to understanding how bees swarm, how neurons in the brain have connected to such a degree that allows for consciousness. Anytime you create a large number [sic] of connectivity between a large number of nodes, you create a high level of thought, or something emerges out of that to create a higher level of consciousness."

FundAlarm has learned that the IPS iFund will also have an interesting redemption feature.....In keeping with the fund's biological theme, "rogue" shareholders (i.e., those who wish to sell) will not be allowed to leave the fund.....Instead, they will be killed and eaten by their peers.

On your honor: Amazon.com recently introduced a new service, which it calls the Amazon Honor System......Basically, the Honor System allows readers of free Web sites to support those sites with small, voluntary credit card payments.....Amazon handles all the processing, takes a cut, and then passes the net amount along to the member Web site.....FundAlarm has signed up with the Amazon Honor System, and we hope you'll consider participating.....If every FundAlarm reader pays $1.50 per month on the Honor System, we'll climb the tallest building in Los Angeles and sing "Oh, What a Beautiful Morning" in a loud, falsetto voice......If nobody pays, we'll be pretty bummed.....But if just 10% of our readers pay $1.50 per month, we'll be able to cover our expenses, and -- even better -- we'll be able to make some important improvements to FundAlarm.....Whether or not the Honor System is successful, FundAlarm isn't going away.....But if FundAlarm is a resource that you value and enjoy, or even if you just like screaming at us, we'd appreciate your support.

Briefly noted:

The FundAlarm Discussion Board 2001 Model Portfolio bounced back nicely in April, gaining almost 8.5%.....But the benchmark Vanguard Total Stock Market Index fund bounced back even more (+9.4%).....Both portfolios are still under water year-to-date, but the FundAlarm portfolio continues to hold a narrow lead.

View the latest results for the Discussion Board Model Portfolio
...and continued thanks to Discussion Board regular "Karl" for his performance summaries
John Bogle, founder and former CEO of the Vanguard funds, still hasn't lost his smooth marketing touch..... According to Bogle, investors who bought the Vanguard 500 index fund because they were chasing performance "are damned fools."
"Index Funds: 25 Years in Pursuit of the Average," Karen Damato, The Wall Street Journal, April, 9, 2001
From the FundAlarm Spy Photographer: Ryan Jacob, manager of the ever-shrinking Jacob Internet fund, appears to be getting ready for a dramatic rotation into the food service sector.....Jacob, who has worn several hats in his short career -- newsletter writer, star manager, failed manager -- now seems to be leaning towards a snappy red and white model (below, right):
In this era of rampant asset-gathering, Ameristock is one of those mutual funds that shouldn't even exist: It's small ($240 million), it's essentially run by one guy (Nicholas Gerber), it has no marketing budget, and its Web site is even uglier than FundAlarm.....Ameristock also happens to have a terrific five-year performance record.....In an apparent effort to undo his five years of reputation building, Gerber recently launched two new funds : Ameristock Large Company Growth Fund and Ameristock Focused Value Fund.....Large Company Growth is down 25.1% during the first three months of its existence (through March 31), but that's not surprising for a large-cap growth fund.....Focused Value is up 30.9% for its first three months, which is an astonishing short-term performance in this kind of market.....So what's the problem with these funds?.....Gerber has no experience as a growth manager, and the growth offering seems like a half-hearted attempt to be all things to all people -- exactly what Gerber hasn't been over the past five years, and one of the reasons he's been so successful.....The Focused Value fund is a time bomb waiting to explode, just like focused growth funds were in early 2000.....Gerber's focused value time bomb only holds about 15 stocks and, recently, 21% of the portflio was in one company (TBC Corporation)......Even scarier, the fund is heavily tilted toward small- and mid-cap stocks, which are inherently more volatile and more difficult to get a handle on......Gerber claims that "Focused Value is the fund I would have started five years ago if anyone had known who I was"......We're sorry to hear that.
The President of Putnam Investments, Lawrence Lasser, received a $33 million bonus in 2000, up 27 percent from the previous year.....During 2000, the average Putnam mutual fund lost 0.37 percent.....Defending his bonus in a recent regulatory filing, Lasser noted that Putnam increased its profit, revenues, and market share during the year -- all of which are irrelevant to the people who invest in Putnam's mutual funds, and make Lasser's salary possible in the first place.
Reuters, March 29, 2001

On April 11, Putnam fired 256 employees, or 4% of its workforce.....Lasser wasn't one of the employees fired, although five fund managers were.....Putnam representatives repeatedly refused to identify the managers who were given the axe, which is really dumb, because all anyone has to do is check SEC filings and the Putnam Web site to see which managers no longer appear where they used to appear.....(Are we the only ones who have this impression, or is Putnam one of the coldest, most arrogant fund companies located outside of Denver?).....Anyhow, here are the Putnam managers who will soon be pursuing other opportunities -- actually, each is a co-manager, and in each case the respective fund will still have several remaining team members:

Putnam fund	Co-manager who got the axe
Voyager; Voyager II; New Century Growth	Charles Swanberg
Health Sciences	David Carlson
Convertible Income-Growth	Charles Pohl
Emerging Markets	Claudio Brocado
Vista	Anthony Santosus

The average mutual fund director received an 11% pay raise in 2000, and we're guessing that the average fund shareholder didn't do quite as well, even though the average fund shareholder held a real job and did real work.....The median compensation for a director at a large fund family ($50+ billion in assets) was $106,000.....Fund families with less than $10 billion in assets paid their directors a median salary of $50,000, which still works out to more per hour than many useful members of society earn for a full week of work.
Data source: Ignites.com, April 12, 2001
Last August, we reported a story about Christopher Bischof, who used to manage a fund for Value Line.....After Bischof left the firm, he participated in an online discussion about his former Value Line boss, Jean Buttner.....Bischof called Ms. Buttner an "old dodo," and apparently suggested that she got her job only because she was the daughter of the Value Line founder.....Bischof deleted his messages at the request of Value Line, and he apologized for his comments, but Buttner still sued him for $3 million.....While the Bischof lawsuit works its way to a settlement, Buttner and her minions are at it again.....This time, Buttner is suing former Value Line analyst Mark DaSilva for libel and defamation, allegedly arising out of his online bulletin board postings.....It's not clear exactly what DaSilva said about Buttner, but it must have been something less offensive than "old dodo," since DaSilva's being sued for only $1 million.
Just so we don't get into trouble, we'd like to state that the following comments about Jean Buttner are not true:
- She's petty and vindictive.
- She's taken a great brand name -- Value Line -- and run it into the ground.
- She's not qualified to run a publicly-held company.
- She should quit.
Fidelity Small Cap fund holds about $1.2 billion in assets, which is five times the size of the average small-company growth fund.....The fund was closed for about a year in 1998, and Fidelity says that it will close again if it gets too large (uh, what about now?).....However, manager Paul Antico has a different view: "I want this to be the biggest small-cap fund in the country. I want to prove that you can run a big small-cap fund".....Perhaps someone at Fidelity needs to remind Antico that he works for his shareholders, and not for his ego.
Mutual Funds, May 2001
A Chihuahua makes amorous advances on a Rottweiler, and Monument announces the introduction of nine new mutual funds.....What do these two events have in common?.....In both cases, it would seem, ambition triumphs over common sense.....Monument is best known for almost nothing, other than the former Monument Internet Fund, which flamed up in 1999, flamed out in 2000, and has since been renamed Monument Something-or-Other Fund (actually, Monument Digital Technology ).....Including four other tech/biotech funds, the entire Monument family currently holds about $60 million in assets, down from about $450 million just 15 months ago.....Monument's nine new funds will be largely subadvised, which means that Monument brings no particular expertise to the table.....In fact, according to Monument president Dave Kugler, the new funds have no compelling reason to exist, other than the fact that the market is down.....By introducing these funds now, Kugler figures they can only go up, which means that they will be able to build an effortless, somewhat deceptive track record.....Kugler's time horizon is one or two years, which seems a bit optimistic.....Monument recently cut its staff from 28 employees to 10, and the management fees on $60 million in assets (plus, perhaps, some private accounts) don't go far......We give Monument maybe a year.
"Trouble Monument to Triple Fund Offerings," Colin Dodds, Ignites.com, April 3, 2001
Oh, and Monument recently instituted a 4.75% "cap" on its fund expense ratios.....Hey, at that level, why not make it a flat 10%, and call it a tithe?
Another ambitious Chihuahua: Kinetics Asset Management, home of the Internet fund (WWWFX), and several other funds whose names escape us, has recently seen its assets under management plunge by about two-thirds (from $1.5 billion to $500 million).....Nevertheless, Kinetics is getting ready to crank out a load class of the Internet fund (as well as two other funds).....The firm is also looking to hire several wholesalers to hustle its load funds to brokers, and it wants to acquire another money management firm.....Why introduce a load version of a tech fund in these dark days?.....Marketing, that's why.....The Internet fund is coming up on the five-year anniversary of its founding, and its five-year track record should be one of the best in the business.....Never mind that most of the fund's five-year record is attributable to 1998 and 1999 performance.....According to the Kinetics CEO, the fund's five-year anniversary is going to be occasion for a "heck of a marketing campaign and a solid sales pitch."
"Kinetics Goes on the Offensive," Colin Dodds, Ignites.com, April 24, 2001
About a year ago, we reported that Vanguard was getting ready to roll out a line of exchange-traded funds, called VIPERs, and that one of the VIPERs would track the Standard & Poor's 500 stock index.....Standard & Poor's promptly sued Vanguard in federal court, alleging that the S&P 500 VIPER represented trademark infringement, breach of contract, and unfair competition.....As you may recall, Vanguard already licenses the "S&P 500" name for the Vanguard 500 Index fund, and Vanguard planned to treat the new VIPER as an additional class of its existing index fund.....Vanguard lawyers assumed that their mutual fund license would carry over to the VIPER, but Standard & Poor's lawyers said "No-no".....Last month, Standard & Poor's won its case in court, and Vanguard says it will appeal.....Initially, it seemed, Vanguard only needed to pay S&P an additional fee for use of the S&P 500 index with the VIPER product.....Now, it seems Standard & Poor's sounds might refuse to grant Vanguard a license altogether, because Vanguard's VIPER would conflict with other exchange-traded funds that already license the S&P 500 index.....Stay tuned.
Mirror, mirror, on the wall, who's the scaredest Fidelity manager of them all? It's probably David Felman, of Fidelity Mid-Cap Stock.....A year ago, on March 31, 2000, Felman had 45% of his fund in technology stocks, and about 5% in cash.....On March 31 of this year, Felman had only 3% in tech, and 19% in cash.....Other Fidelity funds making big cuts in their tech holdings over the past 12 months: Fifty (from 27% to 0%), Contrafund (24% to 3%), and Aggressive Growth (66% to 33%).....And then, just because there has to be one oddball in every crowd, we have Harry Lange, manager of Fidelity Capital Appreciation.....Lange has increased his tech exposure over the past 12 months, from 33% to 47%.
The German insurance company Allianz is acquiring the Dresdner RCM mutual funds.....Dresdner RCM will enjoy bier und gemütlichkeit with the Nicholas-Applegate and Pimco funds, which were also acquired by Allianz during the past year.
France's Societe Generale (SocGen) has agreed to buy 70% of the TCW Group, home of the TCW mutual funds.....SocGen will make its payments in stages, and there's a complicated "earn-out" structure that's designed to keep TCW managers and executives in place for at least another five years*.....Unfortunately, as with almost all deals like this, fund investors have no way of knowing whether their particular manager has a greater financial incentive to stick around or bail out as soon as that first big check arrives.....The fate of Glen Bickerstaff should be especially interesting......Bickerstaff is TCW's only star manager, and something tells us that he didn't join TCW three years ago to be part of an organization like this.
* "Societe General to Acquire 70% of TCW," Aaron Lucchetti/John Carreyrou, The Wall Street Journal, April 12, 2001
Wanna own a really feeble fund company?.....Zurich Scudder is shopping a buyer or merger partner for the Scudder family of funds, and you can probably pick up the whole lot cheap.....Pop quiz: Can you name even one Scudder mutual fund?.....We didn't think so, and that's why Scudder isn't worth much.
The best legislature that money can buy?.....In early April, Maryland lawmakers overwhelmingly passed a bill that was rammed through by two Maryland-based fund company giants, T. Rowe Price and Legg Mason.....The new law makes it almost impossible for fund shareholders to sue any mutual fund, for any reason, if the fund is incorporated in Maryland.....Nice work, guys.
In 1860, it took the Pony Express about eight days to deliver mail 2,000 miles (that's 250 miles per day).....On November 30, 2000, Cathy Baker resigned as manager of the RS Internet Age Fund, and it took 123 days (until April 2, 2001) for the fund company to notify us by mail of Baker's departure.....We live about 600 miles from the RS mutual fund offices in San Francisco, so the news of Baker's resignation traveled about 5 miles a day to reach us.....Here's some free advice for RS fund executives: Get a horse.
Blaine Rollins, manager of the Janus fund, recently tried explaining to reporter Bridget O'Brian, of The Wall Street Journal, why his closed fund was unlikely to reopen:

"Do I really have less cash than I do have absolutely great ideas in the portfolio?
Right now, I don't really."
If you have trouble understanding this somewhat pretentious comment, the following diagram might help: