FundAlarm - Highlights & Commentary Archive

Highlights and Commentary

By Roy Weitz

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

FundAlarm joins the battle: From time to time, readers ask us whether load or no-load funds are "better".....This is an eternal hot topic in the fund world but, somehow, we've never taken a look at our database from this angle.....Perhaps now is a good time:

	Entire FundAlarm database	Losers (i.e., Most-Alarming 3-ALARM Funds)	Winners (i.e., Honor Roll Funds)
Load funds # in category / % of category	2083 / 54%	148 / 59%	245 / 53%
No-load funds # in category / % of category	1799 / 46%	101 / 41%	218 / 47%

As you can see, load funds make up 54% of our overall database, and there are slightly more load funds than you might expect on our list of most-alarming 3-ALARM funds (59%).....There are also slightly fewer load funds than you might expect on our honor roll (53%).....In general, however, we'd call it a draw between load and no-load funds..........So, if you don't get extra performance from a load fund, what do you get for paying that extra money?.....It should be service.....If you need (and get) regular, ongoing attention from your broker, a load fund may represent good value.....If you never hear from your broker, or the advice is poor, you're probably wasting your money......If you don't know how to start in a no-load world, how about Vanguard Total Market Index?.....It won't send you a Christmas card every year, but you won't see it driving a nicer car than you do, either.

Large enough to drive a tank through: We recently received the following e-mail from FundAlarm reader "Woody":

M1A1 Abrams tank
prepares to drive through
breach in Janus security

"I just became aware that Janus Funds have recently changed the way they handle account access security. Like most mutual fund companies, they have always required anyone trying to access account information by phone or internet to input a Personal Identification Number (PIN).

In the past, in order to change an existing PIN, it was necessary to first supply the current PIN number ... a reasonable safeguard. But now, via the Janus website, anyone with access to both your social security number and your account number can change your PIN without knowing the current PIN!

Social Security numbers are easy to obtain and account numbers are documented in many places (statements and other correspondence). PIN numbers are short enough to memorize without writing them down and provide an additional, necessary level of security. By allowing anyone with access to your social security and account numbers to change your PIN, Janus has effectively eliminated this safeguard.

Janus has offered no explanation of why they have made this change but presumably too many people are forgetting their PINs and calling Janus' customer service to retrieve them. Of course customer service reps are an expense item and Janus has been cutting them lately so one might easily conclude that Janus is placing it's own financial wellbeing ahead of it's client's security.

Hopefully public opinion can force Janus to rescind this policy and resume requiring anyone trying to change a PIN to know the old PIN."

Actually, Woody might be understating the problem, if you consider how many bankers, attorneys, accountants, brokers, financial planners -- and their employees -- could have access both to your Janus account numbers and your social security number.....Woody wrote to Janus around May 20, complaining about the new system, and on May 29 he received this reply:

We appreciate your feedback regarding the new "Reset PIN" feature of janus.com. Before we added the feature we heavily weighed the benefit of being able to reset your PIN from janus.com against the potential security issues that might arise. We are quite confident that we can obtain the high level of security necessary to preserve the integrity of your accounts while allowing you the flexibility to change your PIN at any time.

With the new features added to janus.com, we've also taken an additional step to preserve your account security. If your PIN number is entered incorrectly on janus.com or Janus XpressLine the PIN will become blocked after three unsuccessful attempts. In addition, if someone sells shares from your account, the proceeds will only be sent to the address of record or to the pre-designated bank account. You can change the bank account on-line but not the redemption options. We require a signature guarantee to change redemption options.

As Woody notes: "It sounds like it is even worse than I originally feared. Not only can you change an existing PIN without knowing the old PIN but now you can change your designated bank account online. Guess that makes it easier for someone to not only view your account information, but also to sell shares and have the proceeds forwarded to their account".....If you are concerned about the new Janus system, you might want to let them know how you feel.

News about the MSCI
global indexes makes
for some interesting
reading

Many investors believe that index funds could be run by monkeys.....If that's the case, it's going to take some pretty smart monkeys to figure out the upcoming changes to several global stock indexes.....The indexes in question are constructed by Morgan Stanley Capital International (MSCI), and they serve as benchmarks for dozens of world and foreign mutual funds.....For mutual fund investors, the EAFE index (Europe, Australasia, Far East) is probably the most widely-used MSCI benchmark, followed by MSCI World.....The upcoming changes to these indexes deal with "free float" and "market representation":

Free float: Many shares of foreign corporations never change hands, because the stock is held by founding families, government agencies, or other companies. If a foreign share isn't readily available in the open market, MSCI is removing it from the index calculation. This free-float adjustment will effectively reduce the market capitalization of some companies, and also reduce the impact of those stocks on the MSCI indexes (which are weighted by market cap).
Market representation: MSCI is also broadening its indexes to cover 85 percent of free-float shares in each industry, up from 60 percent under its old index rules. As a result of this change, several hundred companies will be added to the MSCI global indexes.

MSCI will phase-in these changes over the next 12 months and, during that period, every mutual fund that follows an MSCI index will have to adjust its portfolio accordingly.....The resulting costs, from trading and otherwise, could cut fund returns anywhere from 0.50% to 1.00% (or more), and capital gain distributions may be considerably larger than usual.....During the transition period, MSCI will provide two versions of each global index, with one version based on the old method of calculation and the other version based on the new method.....Each international fund will be allowed to conform to the new MSCI indexes according to its own timetable.....Therefore, two funds that track the same MSCI index may post different returns, yet both will be able to claim that they are true to their benchmark.....As a result, short-term comparisons between international index funds may be slightly skewed for a year or more.
"How the Broadening of an Index May Narrow Your Returns," Jonathan Fuerbringer, The New York Times, May 13, 2001

	"In order to make it profitable, we would really have to work hard."
--- Gary Campbell, CEO of Kennedy Capital Management, displaying the spirit that made America great, as he explains why his firm has decided to shut down two small mutual funds. Source: mfwire.com

Let's say it's 3:30 p.m. on a Wednesday in New York, and the U.S. stock market is having a great day.....Like any good capitalist, you start looking around for a way to make some easy money, and your attention turns to mutual funds that invest in Japanese stocks.....Why Japanese stocks?.....To understand the reason, we need to do a little time-zone gymnastics.....At 3:30 p.m. on Wednesday in New York, it's 4:30 a.m. on Thursday in Tokyo.....The Japanese stock market for Wednesday has been closed for over 13 hours, but -- and here's the key -- U.S. fund companies haven't yet priced their Japanese mutual funds to reflect Wednesday's trading activity in Japan.....Remember, Wednesday has been a great day for the U.S. stock market and, when Japanese markets open on Thursday, they are also likely to jump.....If you buy a Japanese mutual fund before the close of Wednesday's market in New York (4:00 p.m.), you're getting prices on Japanese stocks that don't yet reflect the big run-up in the U.S. market.....If you sell that fund before 4:00 p.m. New York time tomorrow (Thursday), you capture all of Thursday's action on the Tokyo stock market, which should be a nice gain.

The technique described above is perfectly legal, in the same way that it's legal to negotiate a really low price with kids at a lemonade stand.....In other words, it does have some social odor.....The smelly part of this mutual fund technique -- which goes by several names, including "international arbitrage trading" and "datelining" -- is that long-term investors in the target fund end up paying the bill for 24-hour investors, in the form of increased transaction costs, excess cash balances, and "dilution" of value.....Recently, a number of foreign funds have tacked on 2% short-term redemption fees, in an effort to discourage arbitrage traders.....In some cases, traders merely treat the redemption fees as a cost of doing business, or the traders pile into other funds that don't have redemption fees.

The latest voice to be heard in the arbitrage controversy belongs to the Securities and Exchange Commission (SEC).....In a recent letter to the Investment Company Institute, the mutual fund trade group, a senior SEC attorney basically ordered mutual fund companies to use "fair value pricing," when appropriate, for their foreign mutual funds.....For example, in our scenario above, the SEC is telling U.S. fund companies that they probably can't use Wednesday's closing prices in the Japanese market to value their funds.....Instead, the U.S. fund companies must estimate the value of their Japanese holdings on Wednesday, in light of Wednesday's events in the U.S. stock market.....In this case, fair value pricing at 4:00 p.m. on Wednesday (New York time) would dramatically reduce, or even eliminate, the jump in Japanese funds on Thursday, thereby negating a 24-hour arbitrage opportunity.

Some foreign funds already reserve the right to use value pricing, although they've done little of it in the past.....Other foreign funds, especially in the Vanguard and Fidelity families, already practice value pricing, and arbitrage traders (at least the smart ones) have been shut out.....Finally, a few funds, such as GAM Japan Capital and Kinetics Asia Technology, value their Asian funds when the Asian markets close.....If you invest in these funds on Wednesday, for example, your purchase won't go through until early Thursday morning (New York time), when the Tokyo exchange has closed for its day on Thursday.....This might seem like a strange way of doing business for U.S. shareholders, who are accustomed to pricing at 4:00 p.m. Eastern time, but it's probably the best way of all to foil arbitrage traders.

If your foreign fund doesn't already reserve the right to use value pricing, you can expect the fund to amend its prospectus soon.....You can also expect your fund's expense ratio to increase slightly, since value pricing will probably require additional staff and consultants.....Last but not least, you should expect some lawsuits related to value pricing, as class-action attorneys second-guess fund companies for their pricing decisions.

A May listing on eBay:

DO YOU LIKE MONEY? NEED MORE OF IT? THEN YOU NEED THIS CD!!!! MUTUAL FUNDS PROSPECTOR COULDN'T MAKE IT EASIER. MY 5 YR OLD COULD RUN HER OWN PORTFOLIO WITH THIS SOFTWARE. START RAKING IN THAT MONEY TODAY. BID NOW!

The age of the information might be a problem, but the price can't be beat.....Opening bid: 99 cents.

The only guarantee is mediocrity: Pilgrim is getting ready to roll out its new Index Plus Protection Fund, and the biggest (only?) selling point of the fund is its "guarantee": If you invest by October 3, 2001, your account is guaranteed to be worth at least the amount of your initial investment on October 3, 2006 (i.e., five years later).....At first glance, this seems like a no-lose opportunity, and that's exactly what the marketers at Pilgrim hope you'll think.....Upon closer examination, however, this fund looks more a financial Frankenstein -- a bizarre cross-breed of index fund, balanced fund, and guaranteed investment contract.

The fund's proposed structure is relatively simple, but it also hints at some of the problems to come.....From July 5 through October 3, 2001, Pilgrim Index Plus Protection will be in its "offering phase".....This is a load fund, with three share classes (A,B,C), so the offering period gives brokers a chance to drum up investors.....The "guarantee period" begins on October 4, 2001, and runs for five years, through October 3, 2006.....During this period, the fund's portfolio will move back and forth between a fixed-income "component" and an equity component, based partly on how the markets are performing, but also based on how likely it is that the fund will be able to meet its guarantee.....Beginning October 4, 2006, the fund enters its "index plus large cap period," and at that point it becomes just another enhanced index fund.

So, what are the problems?

During the offering phase, Pilgrim Index Plus Protection plans to charge a management fee of 25 basis points (0.25%), even though all of the fund's assets will be invested in cash equivalents. In other words, for several months, it will be an expensive money market fund.
During the guarantee period, the management fee jumps to 80 basis points, plus a 12b-1 fee (25 to 100 basis points, depending on share class), plus the cost of the financial guarantee, which is provided by MBIA Insurance Company. Depending on share class, investors can expect an overall expense ratio of 1.75% to 2.50% -- a whopping amount for any fund with "index" in its name.
As the fund starts trading, the guarantee will dominate everything else. In fact, there's a side agreement between the fund managers and MBIA that actually gives the insurance company certain veto rights over investment decisions. For example, if the market drops dramatically during the early days of the fund, the agreement with the insurance company could require the fund managers to move into fixed income, and stay there for the duration of the guarantee period. If you think about it, that provision makes a lot of sense for the insurance company, since it limits their potential loss. But it could be a disaster for investors, since the fund would basically become a bond offering, and it wouldn't be able to participate in any market recovery.
Even if the fund doesn't totally tank early in its life, it's likely to be run with excessive caution. Remember, the managers of this fund have no incentive to beat a benchmark, such as the S&P 500. Their overriding goal is not to lose money. For example, let's say we're in October 2005, which means there's another 12 months left in the guarantee period. If the fund has generated a net positive return since inception, the managers are likely to start playing out the clock, since they don't want to fall back into a loss position and trigger the guarantee. If the fund is still under water in October 2005, the agreement with the insurance company could prevent the managers from aggressively trying to make up lost ground.
Because the fund will always have its eye on the guarantee, and the managers will constantly be fine-tuning their equity/fixed-income allocation, portfolio turnover will be high. The prospectus warns that the turnover rate could be 200%, which means excessive transaction costs and, most likely, large taxable distributions.
The guarantee doesn't cover the load, which could be as high as 5.75%. So even if the guarantee does kick in, you still won't get all of your money back.

Financial "guarantees" are always expensive trade-offs and, in our opinion, guarantees have no place in equity funds.....If you're concerned about the stock market over the next five years, there are better alternatives than the Pilgrim Index Plus Protection Fund.....For example, you might consider putting your cash in a money market or short-term bond fund until you feel more comfortable with stocks.....Even better, keep a portion of your portfolio fully invested, and withdraw just enough cash from your stock funds until you reach your comfort level.....Most of all, Pilgrim Index Plus Protection strikes us as a sucker fund.....Pilgrim will probably raise a lot of money for this fund, but that doesn't mean it's a good investment.....It just means that there are lots of suckers out there.....But we already knew that, didn't we?

	"When you rent a movie called The Texas Chain Saw Massacre, you expect to see a massacre of some sort, in Texas, involving chainsaws in some capacity. Shouldn't the same principle apply to mutual funds?"
--- David Futrelle, in Money magazine, noting that the largest holding of Kinetics Internet Emerging Growth was recently Tredegar Corp., an old-economy manufacturer of aluminum extrusions.

Follow the bouncing stars: No system for evaluating mutual fund performance is perfect, and that certainly goes for the Morningstar system.....Indeed, Morningstar is often the first to point out the limitations of its own "star" rating system.....Consider, for example, the recent gyrations of Berkshire Focus.....In February of this year, Berkshire Focus was a five-star Morningstar fund, in March it was a three-star fund, and in April it was a five-star fund again.....As one Morningstar reader plaintively asked, "Can't Morningstar analysts decide how they feel about this fund?".....The problem, as you may have guessed, lies in the strictly mechanical way that Morningstar assigns its ratings.....For funds that have been around a while (say, 10 years), Morningstar's overall star rating is a weighted average of three separate star ratings (three-year, five-year, and 10-year), and the longer periods carry more weight.....Berkshire Focus is slightly more than three years old, which means that its star rating is entirely dependent on its three-year return.....As we've seen many times in FundAlarm, trailing three-year performance can vary dramatically from month to month, and that exactly what has happened with Berkshire Focus.....At the end of February, 2001 Berkshire had a three-year return of about 25%, which was enough to earn it five stars.....A disastrous March cut its three-year return to 11.6%, and also cut its rating to three stars.....A big bounce in April pushed the fund's three-year return back to about 24%, and also restored its five-star rating.....With any mechanical rating system, including the FundAlarm "alarm" system --it's important to understand both the overall methodology and, for each fund, the trend of its rating from month to month.....Investment decisions based on a one- or two-month view are likely to be poor decisions.
"Star-Rating Changes for April," Dan Culloton, Morningstar.com, May 7, 2001

Several months ago, INVESCO paid about $120 million to name the Denver Broncos football stadium "INVESCO Field at Mile High"......In late May, to a breathless public, INVESCO finally revealed the new stadium logo:

"Proud, bold and energetic, the 27-foot tall Bucky, the horse that symbolizes the strength of the Denver Broncos winning tradition, stands guard over INVESCO Field at Mile High".....That's according to an INVESCO press release.....Now, for a quick quiz: According to the press release, what is symbolized by the six pillars (three on Bucky's left and three on Bucky's right):

The number of people who care about corporate logos.
The number of dollars of additional revenue this naming will generate for INVESCO.
The number of counties in the Denver metro area that made this stadium a reality.

All answers are correct, but the press release only acknowledged #3.

Briefly noted:

It's alive! It's alive!.....The FundAlarm Discussion Board Model Portfolio finally moved into positive territory (through May 22), and slightly widened its lead on its benchmark, the Vanguard Total Stock Market Index fund:

As of:	FundAlarm	Vanguard
Feb 22	$95,900	$94,900
Mar 22	86,161	84,480
April 22	93,445	92,440
May 22	103,670	100,070

View the latest results for the Discussion Board Model Portfolio
...and continued thanks to Karl for being the portfolio monitor

Liberty Financial runs two closed-end floating rate funds.....Last year, somebody at those funds forgot to file some necessary paperwork with the SEC, which means that Liberty was selling the funds illegally for several months until the error was finally caught.....Now, in an effort to make nice (and also because they'd be in even bigger trouble if they didn't), Liberty is offering to buy back all of the unregistered shares, with interest, from the date of purchase.
Why, it almost seems like the executives at Liberty (above) were distracted by something, but what could it be?.....Perhaps it was their own self-interest.....Liberty, which also runs the Stein Roe, Crabbe Huson, and Acorn/Wanger funds, is close to being sold.....Recently, several Liberty executives granted themselves the right to multi-million dollar severance pay if the new owner decides to fire them.....Even better, if the new owner keeps them on the payroll, each Liberty exec will be entitled to a retention bonus that's only slightly smaller than his severance pay would have been.....In any other business context, this kind of arrangement might be called "extortion".....In the mutual fund world, it's called an "executive compensation package."
Sometimes, knowing about the internal workings of a fund company can help you become a better investor.....Take the Columbia funds, for example.....The company that manages the Columbia funds has a reputation for collegiality and "top-down" analysis, which means that the managers talk a lot among themselves, and seek to identify big, (often) pretentiously-named themes that are likely to drive the economy.....Then, it's up to the individual managers to apply these top-down themes to individual stocks.....One problem with this kind of approach is that it often leads to group-think, and that's definitely a concern at Columbia.....Recently, for example, eight of the top-ten stock holdings of Columbia Common Stock and Columbia Balanced were identical, while Columbia Common Stock and Columbia Growth shared six of their top-ten holdings.....Richard Johnson (Columbia Small Cap, Columbia Special) is reportedly the only Columbia manager who steers a truly independent course.
"The View From Above," Barbara Mlotek Whelehan, Mutual Funds, May 2001
Invesco, always on the cutting-edge of technology, has announced a new speech recognition feature for its customer service telephone lines.....Customers will be able to access account information by speaking short commands, such as "price" or "account balance"......Customers who own Invesco Blue Chip Growth, a serious 3-ALARM fund, will also be able to provide short editorial comments, such as ?!¿#? and !#?¿!
They're geniuses! According to Marketocracy.com, the combined performance of its top 100 "virtual" (i.e., amateur) fund managers was better than 99.7% of professional fund managers for the first quarter of 2001.

[As we reported last August, Marketocracy.com is the creation of Ken Kam, co-founder of the Firsthand Funds. The site gives users the opportunity to construct and manage their own fantasy mutual funds, starting with one million play dollars each. After three years of watching the fake funds perform, Kam says that he plans to hire the best fantasy managers to run several real funds.]
No they're not! A total of about 41,000 virtual fund portfolios have been established at Marketocracy.com, and the proprietor of the site (Ken Kam) refuses to release performance data for any but the top 100 portfolios.....So, it's safe to assume that the other 40,900 Marketocracy portfolios aren't performing nearly as well as the top 100.....Readers who are quick with a calculator will have already noted that the percentage of lagging portfolios at Marketocracy.com (99.7%) is exactly the same as the percentage of lagging portfolios in the professionally-managed fund world.....Perhaps, with a pool as large as the one at Marketocracy, a small number of managers is always going to be lucky.....And, besides, three months is a meaningless period of time.
Barron's, David Franecki, May 7, 2001
Speaking of geniuses: Mensa, a social group for brainiacs (top two percent IQ), has an investment club that's returned 2.5% annualized over the past 15 years.....That return is significantly less than T-bills over the same period, and not even on the same planet as the S&P 500 Index (15.3%).
"If We're So Smart, Why Aren't We Rich?", Eleanor Laise, SmartMoney, June 2001.
Times are tough for the mutual fund industry, but the socially-conscious Calvert family says it has no plans to cut its employee perks.....In addition to a 15-minute weekly in-office massage, Calvert employees who walk to work are reimbursed for the cost of one pair of walking shoes per year, while bicycle commuters receive a one-time contribution towards the purchase of a bike*.....At the other end of the socially-responsible spectrum, we've heard that Calvert employees who drive sport-utility vehicles could be in for some hard times.....Calvert apparently plans to give them really crummy offices, as well as extra publicity at the local post office:

This Calvert employee
drives a Chevy Suburban * "Perks Persist,"
Tamiko Toland,
mfwire.com, May 2, 2001
George Vanderheiden, a long-time value manager at Fidelity, quit his two funds in February 2000.....Bettina Doulton took over Fidelity Advisor Growth Opportunities, and Karen Firestone took over Fidelity Destiny I.....Each manager shifted Vanderheiden's former funds heavily into technology stocks, just in time to get crushed by the Nasdaq collapse.....Under the leadership of Doulton and Firestone, each fund has lost about 18% since Vanderheiden left.....If Fidelity had simply frozen Vanderheiden's portfolios at the end of 1999, each fund would have gained about 22%.
"All in the Timing," John Hechinger, The Wall Street Journal, May 14, 2001
More of the same: Value manager Robert Sanborn quit the Oakmark fund about the same time Vanderheiden (above) quit his Fidelity funds.....Bill Nygren took over for Sanborn, and the Oakmark fund gained about 12% during 2000.....If Oakmark had frozen Sanborn's portfolio at the end of 1999, the fund would have gained about 20%.
"Deep Value, Tall Returns," Barbara Mlotek Whelehan, Mutual Funds, June 2001
The Strong Internet fund has proved weak, and the Merrill Lynch Internet Strategies fund has proved clueless.....Both funds opened virtually at the top of Internet bubble, in early 2000, and both will soon be put out of their misery.....The Merrill Lynch offering deserves special recognition, for vaporizing about $600 million of investor money.....Through the end of May 2001, that works out to an average of about $1.9 million lost for each day that the stock markets were open.
It just occurred to us that "Scudder" sounds a lot like "Scuttle".....In any event, as executives continue looking for someone to buy the firm, the good ship Scudder keeps springing leaks.....Four more portfolio managers bailed out this month, bringing the recent total of Scudder defections and firings to, uh, many.
Life can be cruel.....On May 2, Robert Pozen, Vice Chairman of Fidelity Investments, was one of 16 people recently named by the current occupant of the White House to a rubber-stamp Social Security commission .....Just a few days after that triumph, Pozen found himself ready to pursue other career opportunities.....It seems that Abigail Johnson, daughter of Fidelity big-boss Edward C. "Ned" Johnson, has decided that she's ready to supervise all of Fidelity's mutual funds.....Since that was Pozen's job, it was obvious that Pozen would be hitting the road.....By all accounts, Ms. Johnson is a very nice person, and by all accounts Fidelity fund managers are as difficult to corral as a herd of cats.....It will be interesting to see if Fidelity managers start sliding back to their pre-Pozen, gun-slinging days.
Imagine the excitement that would greet a collection of Al Gore's campaign speeches.....Now you have some idea of the excitement that recently greeted the reopening of the Munder NetNet Fund.....Someone who invested in this fund at its inception (August 1996) would have had a wild but reasonably lucrative ride (26% annualized return, versus 22.6% for the average tech fund).....But if you invested in Munder NetNet almost any time after October 1998 (as many did), you'd be better off today if you had just bought the Vanguard 500 Index fund.....If you think the Internet frenzy of the past five years is going to repeat itself, and this time the gains are going to stick, then Munder NetNet (or another beaten-down Internet funds) could be a great, ground-floor opportunity.....It's much more likely, however, that diversified tech funds will outperform.
If you're looking for a great way to waste some money, be sure to check out the upcoming Morgan Stanley Nasdaq 100 Index Fund.....This fund will track the top-100 Nasdaq stocks, exactly as the QQQ tracking stock does.....But the Morgan Stanley fund will come with a maximum load of 5.25%, while the QQQ can be bought for a standard stock commission.....In other words, $10,000 worth of the new Morgan Stanley fund will cost you $525, while the same amount of the QQQ might cost only $20 or $30.....A suggestion from FundAlarm: If your broker tries to pitch the new Morgan Stanley Nasdaq 100 Index Fund, and he or she doesn't offer the QQQ as an alternative, find a new broker.
In May, we predicted that the struggling Monument fund family would be history within a year.....Now, it seems like the end is only a few months away.....On May 8, Monument handed over management of three funds to the Orbitex fund family (Monument Digital Technology, Monument Medical Sciences, Monument Telecommunications).....A few days later, Monument president Dave Kugler apparently decided "What the heck, this is a sham anyway," and Kugler announced that the same three Monument funds would be merged into the Orbitex family.....Monument Digital Technology will reportedly keep its name, and Glen Frey will take over as manager.....Medical Sciences will take on the Orbitex name (with Timothy Bepler as manager), and the Telecomm fund will be merged into Orbitex InfoTech and Communications.....What about Monument's other two funds?.....Monument EuroNet is subadvised by a French firm, Financiere Rembrandt, but that fund barely has enough assets to keep its managers supplied with Perrier.....It's days are numbered, too.....And, finally, there's tiny Monument Genomics.....The manager of Genomics also used to run Monument Medical Sciences.....Now that the latter fund is gone, the manager is almost certainly expendable, too.....If Kugler wants to keep the Genomics fund afloat, he'd better start reading that biology textbook, fast.
"Net-Fund Boutique Moves to Get out of the Fund Business," Morningstar.com, May 17, 2001
Until now, all exchange-traded funds (ETFs) have been based on stock indexes.....The SEC recently revealed that it's considering an application for a bond-index ETF.....The SEC also said that it's starting a process that could lead to the approval of actively-managed ETFs.....When asked to comment on the possibility of actively managed ETFs, the heads of several mutual fund made exactly the same point: "Uh oh."
For the past few years, investors have had unrealistic expectations about the future rate of return for stocks.....Now, it's time for some fixed-income delusions.....According to a recent John Hancock survey, individuals expect annual bond returns to average 12.9% over the next 20 years, while money market funds are expected to return 12.0%.....Over the past 75 years, these categories have actually returned 5.7% and 3.8%, respectively.
According to most fund-rating sources, Fidelity Magellan is once again the largest mutual fund in the U.S., with Vanguard 500 Index in second place.....Vanguard doesn't care about bragging rights, of course, but the folks at Vanguard are still just a little bit steamed over how the size of their fund is determined.....Most rating services don't aggregate assets of different fund classes.....For example, Putnam Growth and Income A (PGRWX), with about $20 billion in assets, is generally treated as a separate fund from Putnam Growth and Income B (PGIBX), with about $9 billion in assets, even though both funds hold identical portfolios.....Brian Mattes, a Vanguard spokesman, says that Index 500 would be larger than Magellan if the assets of Vanguard's new, low-cost Admiral shares were added to the assets of the regular Index 500 shares*.....The only comment from Fidelity: "Nah, nah, we're bigger."
* "Bragging rights," John Waggoner, USA Today, May 8, 2001
A couple of years ago, Christopher "Kip" Condron was the up-and-coming, tough-guy executive in charge of all Dreyfus mutual funds.....We were especially taken by a 1999 magazine profile of Condron:
- What they're telling you about "Kip" Condron*: "A tall, lanky straight shooter, Condron keeps a couple of hard balls on his desk. When asked about their significance, he smiles and lets visitors figure it out for themselves."
  * "The Lion That Wants to Roar," Robert Frick, Kiplinger's, February 1999
- What they're not telling you about "Kip" Condron: "Condron pauses by the corner of his desk, and lifts his leg. When asked about the significance, he bares his teeth and growls."
Alas, Condron recently left Dreyfus.....He and his hard balls now reside at Axa Financial, a firm even more peripheral to the mutual fund industry than Dreyfus.