| Highlights and Commentary |
| By Roy Weitz |
Making progress by moving sideways: Lets' say you own a mid-cap blend fund, which seems to have taken up permanent residence on FundAlarm's list of 3-ALARM funds .....You know that you and your fund should part company, but you don't know exactly what to do next: Should you buy a similar fund, or should you try something new? And what are some specific replacement funds that you should consider?.....Obviously, the appropriate fund-selling strategy depends on your own situation.....But if you're stuck, and you simply want to get off the dime, consider making a sideways move: Identify the capitalization range and style of the fund you want to sell, and find a better-performing fund of the same cap range and style (in other words, sell your underperforming mid-cap blend fund and buy a better mid-cap blend fund, swap your international blend fund for a better international blend fund, and so on)......If you have a formal asset allocation plan, this selling strategy makes even more sense, since a sideways move keeps your overall allocation intact, and simply exchanges one fund name for another.
The IPS mutual funds are being sold to the Integrity fund family, and IPS Millennium and IPS New Frontier will be merged into a single, new fund, Integrity Millennium, which will continue to be managed by Robert Loest.....The IPS iFund, a shareholder-managed mutual fund, is not making the move over to Integrity.....As of November 30, the IPS Web site indicated that the iFund "is no longer available," which means that it's either gone, or on the way out.....As some FundAlarm readers may recall, IPS iFund has been under a FundAlarm death watch since its inception.....Here's what we wrote back in April 2001:
| "Undeterred by the recent failure of other dumb funds, IPS is preparing perhaps the ultimate gimmick fund: the IPS iFund.....According to its prospectus, the IPS iFund will buy and sell stocks based entirely on shareholder vote, and the folks at IPS will basically sit back and watch the confusion......The fund's management fee is pegged at 1.4% which, by comparison, makes bottled water seem like a bargain." | ||
| ... | ||
| "Dumb funds don't last.....So, send us an e-mail with the date on which you predict the IPS iFund (above) will go out of business.....If you're correct, you'll win a $100 Amazon.com gift certificate." |
Back in September, FundAlarm actually reported an original story, one that we didn't borrow from someone else: Kevin Landis, head of the Firsthand funds, is being sued in a Northern California court by his former public relations mouthpiece, Steven Witt.....One of Witt's allegations is that Landis "repeatedly represented to the public that the [Firsthand Growth Funds] were managed by a team of investment advisers. In fact, ...Landis exercised complete control of the [funds]".....Since the prospectus for these funds also indicated that a management team was in charge, Landis' alleged misrepresentations weren't merely careless, but may have been violations of federal securities law.....According to mercurynews.com,* the SEC recently paid a visit to Landis' shop and, among other things, the feds were trying to figure out who really ran the funds in question .....Landis says he isn't worried, the SEC isn't talking, and we should know in a few months whether Witt or Landis has been telling the truth.
If you glanced at the graphic on the left or the right and thought "How nice!" then you probably won't be interested in one of the new fine-art investment funds.....But if you're in the market for a speculative, trendy, and risky investment, one of these art pools may be waiting for you to take the plunge.....Here's the concept: Fine art indexes have kept pace with stock indexes over the past 50 years, and some types of art have significantly outperformed stocks, so there's money to be made by hitching a ride.....Here's the downside: Fine-art values can be enormously volatile, liquidity is problematic, diversification is difficult, transaction costs are high, and operating costs (storing, insuring and maintaining) can be surprisingly steep.....Also, with art that you own directly, at least you get some psychic returns ("Look at that painting! I'm such a tasteful and sophisticated investor!").....But an art fund might as well be a mutual fund, for all the aesthetic pleasure that it brings, which raises a good point: Even if you have the money for an exclusive investment like an art fund (typically, $250,000 or more), it's still tough for anyone to beat a simple, inexpensive, well-managed stock mutual fund
 Stock Fund | When does a fund get too large? That question has generated a lot of debate over the past few years, and now someone has finally come up with a simple, common-sense answer: A fund gets too large when its manager says that it's too large.....Historically, managers have shut the doors to small-cap funds at a median asset level of about $800 million.....Likewise, mid-cap and large-cap funds historically have been closed at asset levels of $3 billion and $18 billion, respectively.....If your fund is still open, and it holds significantly more assets than the consensus closing level, you might want to do some further investigation (remember, by the nature of the business, these consensus closing levels are already set quite high).....Among the legitimate reasons a large fund might still be open: It has a deep bench of analysts, who continue to contribute good investment ideas.....Among the not-so-good reasons a large fund might still be open: The fund company is greedy, and it wants to suck up all the management fees it can. | |
| "Is Your Fund Too Fat," Russel Kinnel, morningstar.com, November 1, 2004 | ||
Bloat in action? Bill Miller, manager of Legg Mason Value, has outperformed the S&P 500 index for 13 consecutive years, but it looks like his streak will end in 2004.....When you combine Miller's fund with his similar private accounts, the Guru of Baltimore runs about $40 billion in assets, and the undertow may be too strong for even Miller to overcome.....In his most recent shareholder letter, Miller admits that he didn't sell some of his big winners from 2003, and jump on the energy bandwagon in 2004, because he wouldn't have been able to unwind his winning positions without first pushing down their stock prices.
Salomon Brothers International Equity is an abysmal fund that soon will be put out of its misery.....Yet this otherwise minor blot on the Salomon Brothers name may have earned itself a spot in the mutual fund history books: It is, perhaps, the fund that was most devastated by the rapid-fire, market-timing trades that were at the heart of the recent mutual fund scandals.....The managers of Salomon Brothers International Equity aren't talking, and the case is mostly circumstantial, but there's strong evidence that something odd was going on during the life of this tiny, five-year old fund (it currently has about $5 million in assets, and it never got much larger than about $10 million).....Following the liquidation of this fund, its manager (Citigroup Asset Management, or CAM) will make "certain voluntary payments" to fund shareholders, which are designed to address the manager's "dissatisfaction with the performance and operation of the fund due, in part, to large cash flows that caused periods during which large cash positions were maintained in the Fund as a result of which the Fund's assets were underinvested in international securities".....In other words: CAM allowed market timers to trash this fund, in a very big way.....How big?.....The journalist who broke this story thinks that CAM may be planning to make almost complete restitution to shareholders, which would mean repaying the difference between the fund's performance and the performance of its benchmark index.....The total dollar amount of the restitution wouldn't be especially large, but the acknowledgement of wrongdoing by CAM would be stunning.
Back in June, we reported that Oppenheimer Capital Income showed a "bank overdraft" (of about $1.5 million) on its financial statements.....Since we had never seen anything like this before, and it didn't seem to be part of the fund's normal investment strategy, we contacted an Oppenheimer "Media Relations" person and asked for an explanation.....Apparently, we aren't considered part of the media, because Oppenheimer completely stonewalled us, and we still have no idea why this overdraft was incurred, or whether fund shareholders incurred any cost as a result of it.....Recently, a diligent FundAlarm reader took a look at bank overdrafts at all Oppenheimer funds, and the results continue to surprise and puzzle us......As you will note from the following table, the most recent financial statements for eleven Oppenheimer funds showed "bank overdrafts," in amounts ranging from about $600 to just over $3 million:
| Oppenheimer fund | Amount of "bank overdraft" (per fund's most recent annual report) |
|---|---|
| Bond | $3,046,871 |
| Capital Preservation | 378,513 |
| Emerging Technologies | 2,639,908 |
| Gold & Special Minerals | 238,715 |
| High Yield | 88,534 |
| International Bond | 633,310* |
| International Growth | 2,130,220 |
| International Small Company | 586 |
| Quest Value | 672,572 |
| Total Return Bond | 259,454 |
| Value | 64,890 |
 Scott Schoelzeltron | If you like ironies, you're going to love this one: Janus, once a boiling cauldron of oversized stock-picking egos, is being supported these days by a stock-picking computer....The computer in question belongs to INTECH, a Janus subsidiary that manages portfolios with nothing more than silicon chips and mathematical formulas.....For the first nine months of this year, while conventional Janus mutual funds were losing a net $17 billion, INTECH grew by about $4.6 billion in assets.....Even better, INTECH's computerized, index-tweaking strategy emphasizes portfolio risk-management, a concept that seems to have eluded Janus' human managers during the late 1990s tech frenzy.....INTECH has been running private accounts since 1987, and it manages one Janus mutual fund (Risk-Managed Stock), which has been available directly to the public since March 2003.....INTECH also manages two Janus "Adviser" funds, which are available through brokers and financial planners and come with sales charges. | |
| "Booming INTECH bolsters Janus," James Paton, rockymountainnews.com, November 6, 2004; thanks to Linkster Ted, of the FundAlarm Discussion Board, for bringing this item to our attention | ||
Gary Pilgrim and Harold Baxter, the founders and former heads of the PBHG funds, have each been fined $80 million for their market-timing activities, and barred for life from the securities industry.....Regulators (Attorney General Spitzer and the SEC) took turns congratulating themselves for these fines, but the fact remains that Pilgrim and Baxter will still be extremely wealthy men, and it's unlikely that either of them will have to turn off the pool heater in his vacation home because of this settlement.....The only thing that people like Pilgrim and Baxter can't buy or replace is time, and the only way to truly punish wealthy people for stealing money is to take away their time, in the form of a prison sentence (strip searches are a nice bonus, but not the main point).....$80 million is a lot of money but, in our opinion, Pilgrim and Baxter were the worst offenders of the entire mutual fund scandals.....The SEC settlement seems like the end of the legal line for these guys and, if so, they got off easy.
Don't get too comfortable with this manager: The Cortina funds haven't even gotten out of the box yet (the effective date of the funds' prospectus is December 30, 2004), but already there's a concern about the manager.....Technically, the Cortina funds will be advised by FMI, but day-to-management will be in the hands of a subadvisor, Cortina Asset Management, which is run by several veterans of the First American funds (Joseph Frohna, John Potter, Brian Bies and Thomas Eck).....According to the Cortina prospectus, the SEC is "currently conducting an informal inquiry involving potentially improper trading of a portfolio security in 2002 at a former employer of a principal of the portfolio manager" (in other words, improper trading by Frohna, Potter, Bies or Eck, presumably while he was employed by First American).....The prospectus goes on to say that, should the SEC take action against Cortina Asset Management because of wrongdoing by one of its principals, Cortina could be booted as manager of the Cortina funds.....At that point, Cortina would either beg the SEC for mercy, and try to continue managing the fund, or FMI would take over and (most likely) appoint another subadvisor.....Chances are, this disclosure is just a case of some lawyer being overly cautious, and Cortina will get its chance to seek mutual fund glory.....Still, this prospectus makes a unique addition to our files, under the heading "Mutual Fund, Tainted Before it Even Starts."
When you're planning your retirement finances, one of the toughest tasks is figuring out when you're supposed to die (sometimes euphemistically referred to as your "planning horizon") .....If you plan for a relatively short life during retirement, and you live longer than expected, you could run out of money.....If you plan for a long life, and it doesn't work out that way, you may end up denying yourself experiences that you won't get a second chance to enjoy.....Traditionally, coming up with a life expectancy for retirement planning has been a seat-of-the-pants activity: You considered how long your parents and relatives lived, you consulted some life-expectancy tables, you plugged the resulting life expectancy into the retirement calculator, and you hoped for the best.....Now, several free Web sites offer a more systematic approach to life- expectancy planning.....If you need to come up with a life expectancy number, or you're just morbidly curious, you might want to take a look at them: