Lumps of Coal awarded bad actors in fund world
By Charles Jaffe
December 29, 2002
signonsandiego.com
No matter how dismal the performance, some people in the mutual fund industry deserve a special something this holiday season.
With that in mind, I present the seventh annual Lump of Coal Awards. These dubious honors go to managers, executives, industry watchdogs and companies for attitude, performance, action or behavior that is offensive, disingenuous, reprehensible, or just plain stupid.
It takes more than miserable returns to earn this bituminous bangle, and this year's "winners" all did something special to stand out from the crowd. The 2002 Lumps of Coal go to:
Lincoln National Convertible Securities, a closed-end fund that last summer recommended that shareholders re-elect a slate of directors who in April 2001 were found guilty in a federal court civil action of breaching their fiduciary duties. When securities regulators urge boards of directors to be more active, that is not the kind of activity they're talking about.
Institutional Shareholder Services, a firm that helps big investors decide how to vote on proxy issues. ISS told its clients to approve Lincoln National's board candidates.
Morningstar, for speaking out of both sides of its mouth. The Chicago-based data-tracking firm has always positioned itself as the small investor's friend. Yet last January, it published an article on its Morningstar Advisor Web site that encouraged financial planners to dump their smallest clients. Presumably, when the champion of the individual investor used the words "Take Out the Weed Whacker" to describe how advisers should treat small clients, it meant those words with love.
The Timothy Plan, a social investment fund based on religious values, for the year's most inane reason to dump a stock. While shopping at Wal-Mart, the fund's president and his wife were offended by the sight ofCosmopolitan magazine on the shelves. When the couple complained and the store wouldn't remove the magazine, the fund dropped Wal-Mart from its portfolio.
The WWW Internet Fund, which as of June 30 didn't own a single Internet stock. Memo to management: When you put an asset class in a fund's name, the rules require that 80 percent of assets be invested in that category. Memo to the Securities and Exchange Commission: Investors tend to be more confident when rules are enforced.
The Pioneer fund, which in a recent ad highlighted the fund's performance against eight famous historical events. Unfortunately, Pioneer's timeline put the great stock market crash in 1928 (it happened in 1929), Black Monday in 1989 (missed it by two years) and the Gulf War in 1992 (try 1991). Here's hoping Pioneer's ad guys do better next year, in what they probably think is the first year of the new millennium.
To the Davis funds, for extreme hubris. In October, Tucson-based Davis Advisors filed a prospectus amendment notifying investors about a management change at Davis International Total Return. Investors were "invited to vote" on the change, but were also told that voting was a waste of time. Since Davis executives already control more than half of the shares, votes from other shareholders wouldn't even be counted.
Fund manager Robert Markman, for his extraordinary delusions. Markman, author of the laughably wretched "Hazardous to Your Wealth: Extraordinary Popular Delusions and the Madness of Mutual Fund Experts," has long maintained that he offers a "superior choice" to investors. Alas, his funds – which buy into other funds – are dogs, all ranking near the very bottom of their peer group for the last one, three and five years.
So this year, Markman closed one fund and is now merging his three survivors into a new offering. That move likely will bury his track record, giving him a fresh start and a mandate to invest in stocks and securities outside of mutual funds. Anyone who expects a swift updraft in performance is deluded.
Markman again, for one of the two worst slogans in the business. The motto for the Markman MultiFunds: "For investors too smart to do it themselves." Bottom-of-the-heap results can be achieved by a poorly trained hamster, so what does this slogan say for Markman's customers?
Fidelity Investments, for the other exceedingly dumb slogan: "Because you're not just invested, you're personally invested." Lest you be confused, this is the firm's way of saying that wasn't Monopoly money it lost for you this year. |
