Dear friends,
I hope there’s nothing ill-omened about a column finished on the 80th anniversary of the "Black Monday" and "Black Tuesday" stock market crash, posted on Halloween, and read – by most folks – on The Day of the Dead. Five of the last six days of the month saw swings (mostly downward) in the Dow of more than 100 points and market-timing newsletters are unrelievedly negative, which, of course, is positive. Except when it isn’t.
Spaced Out Snowball
From 1973 to 1987, Russell Baker wrote "Sunday Observer" for the New York Times Magazine. Baker, now retired, wrote with a wry wit ("Misery no longer loves company. Nowadays it insists on it") that helped his jabs hurt a bit less ("Usually, terrible things that are done with the excuse that progress requires them are not really progress at all, but just terrible things.") By happy coincidence, he and I agreed on what his best column was. It’s entitled, "Spaced Out" and was first pushed in May of 1975.I am sitting here 93 million miles from the sun
on a rounded rock which is spinning at the rate of 1,000 miles an hour,
and roaring through space to nobody-knows-where,
to keep a rendezvous with nobody-knows-what,
for nobody-knows-why,
... while off to the north of me the polar icecap may,
or may not,
be getting ready to send down oceanic mountains of ice
that will bury everything from Bangor to Richmond
in a ponderous white death,
and there, off to the east,
the ocean is tearing away at the land and wrenching it into the sea bottom and coming back for more,
as if the ocean is determined to claim it all before the deadly swarms of killer bees,
... can get there to take possession,
although it seems more likely that the protective ozone layer in the upper atmosphere may collapse first,
exposing us all, ocean, killer bees and me, too,
to the merciless spraying of deadly cosmic rays.
I am sitting here on this spinning, speeding rock
surrounded by four billion people, eight planets, one awesome lot of galaxies,
hydrogen bombs enough to kill me 30 times over,
and mountains of handguns and frozen food,
and I am being swept along in the whole galaxy's insane dash toward the far wall of the universe,
across distances longer to traverse than Sunday afternoon on the New Jersey Turnpike,
so long, in fact, that when we get there I shall be at least 800,000 years old,
provided, of course, that the whole galaxy doesn't run into another speeding galaxy at some poorly marked universal intersection and turn us all into space garbage,
or that the sun doesn't burn out in the meantime,
or that some highly intelligent ferns from deepest space do not land from flying fern pots and cage me up in a greenhouse for scientific study.
So, as I say, I am sitting here
with the continents moving,
and killer bees coming,
and the ocean eating away,
and the icecap poised,
and the galaxy racing across the universe,
and the thermonuclear 30-times-over bombs stacked up around me,
and only the gravity holding me onto the rock,
... and as I sit here, 93 million miles from the sun,
I am feeling absolutely miserable,
and realize, with self-pity and despair,
that I am getting a cold.
And I, dear readers, have gotten the flu. Or something sufficiently flu-like that the distinctions between it and the real flu are merely semantic. And so, for now, my column will, like me, be a mere shadow of its normal self.
Mairs & Power Balanced: The Best Balanced Fund that You Have Heard About
Morningstar continued its series on funds and fund families that "you’ve never heard about" with a profile of Mairs & Power Balanced (MAPOX). William Samuel Rocco’s entirely sensible profile ran October 27.
True. As along as you haven’t read FundAlarm’s profile (over three years ago) or any of the dozen or so subsequent references in the Annex or Roy’s Honor Roll of No-Alarm funds, or the dozens of recs on the Board. Sigh.
True or not? "There is no such thing as bad publicity"
The fund industry might be in the midst of testing Brendan Behan’s, the late Irish playwright, aphorism. Two branches of the federal government are investigating highly profitable industry practices this month, while the third branch has been weighing cheerfully in.
The U.S. Supreme Court is slated to here arguments on November 2nd in the case of Jones v. Harris Associates. At issue is whether funds are violating the law when they charge one management fee when they’re investing money for institutional investors and another, much higher fee when they’re managing money for the likes of us. At question are the management fees; that is, the money paid for the privilege – in the immediate case – of Bill Nygren’s services. Harris charged about 0.4% (plus the cost of actually administering the fund) to fancy folks but 0.8% (plus the cost of actually administering the fund) to the hoi polloi. The fund industry’s arguments have been understandably self-serving (you and I wouldn’t want lower fees because it would lead the most talented folks to give up mutual fund management). The majority in the Court of Appeals,
as I noted in an earlier column, defended their conclusion with arguments that mostly revealed the utter cluelessness of the judges. On whole, I’d rather have the Yoknapatawpha County Board adjudicating the issues.At the same time, the U.S. Congress has been holding hearings on target-date funds and the proposed Investor Protection Act of 2009. Well-intentioned people got the law rewritten in 2006 to make target-date funds the default option in many retirement plans; that is, if your employer is contributing something to your retirement and you don’t specify where you’d like the money to go, by default it’s placed in a target-date fund. The old default option was a money-market account whose disastrously low returns made them inappropriate for the task. Now Congress is investing abusive marketing and pricing practices in those funds. Since target-date funds are generally funds-of-funds, they offer the possibility of egregiously high expenses (see Jones v Harris!) when a company charges 1% or more in expenses on top of the expenses levied by its own underlying funds. In addition, such funds are exempted from the fiduciary requirements imposed by the 1974 Employee Retirement Income Security Act (ERISA). Advocates for regulations argue that the funds’ "privileged position" as a default option requires that they operate under particularly close scrutiny.
The fund industry, through its Investment Company Institute, issued the usual: "important innovation," "used effectively," "no incentive to use poorly performing proprietary funds" (right, just as Merrill Lynch’s brokers have no incentive to push Merrill’s funds in preference to low-cost, no-load competitors), "fully disclosed and transparent," "investment decisions should be left to the professionals." A host of bright witnesses – including Morningstar’s John Rekenthaler and former Vanguard CEO Jack Bogle – were noticeably less supportive of the industry’s "don’t worry, be happy" approach.
Had I mentioned that Behan’s original aphorism was a bit longer than we normally remember? Not "There’s no such thing as bad publicity," but rather "there’s no such thing as bad publicity, except your own obituary."
Briefly noted:
Invesco has entered into an agreement to purchase Morgan Stanley's retail asset management business, including Van Kampen Investments and the Van Kampen mutual funds. And just so that things can become as complicated as possible, some mutual fund management teams will remain with Morgan Stanley, even after the sale is complete (probably in mid-2010). Those funds managed by teams that remain with Morgan Stanley will almost certainly see a management change, as Invesco replaces those managers with its own (hint: it has to do with who profits from the management fee). Van Kampen has published a list of fund management teams that are "remaining with Morgan Stanley." If you own a Morgan Stanley or Van Kampen fund, you might want to check out this road map to future turnover, so you can start planning now.
In a cheery development, the Board of the Frontegra funds voted to ditch the sub-advisor who managed Frontegra New Star International and to hire a new crew, Masthold Asset Management. The fund has been renamed Frontegra Mastholm International Equity Fund.
Harbor continues to delay launch of their go-anywhere Special Opportunities fund.
Wishing you all good health,
David
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