October 15, 1999
SMARTMONEY.COM: OpenFund Lets It
All Hang Out
By MARK MCLAUGHLIN
Smartmoney.com
NEW YORK -- Ever wonder what your mutual fund manager is up to?
Not if you're a shareholder of OpenFund, you don't. This novel, new fund
aims to bring day-trading excitement to the updated-every-six-months
world of mutual funds. The $7 million fund, which opened in August, has a
Web site where you can find its constantly updated portfolio, real-time
blurbs describing the day's trading activity, realized and unrealized capital
gains, and even panoramic, 24-hour views of the folks on the trading floor.
Thank goodness there's no camera in the bathroom.
The fund is the brainchild of Donald L. Luskin, 45, and H. David Nadig,
32, who are co-founders of the fund's adviser, MetaMarkets.com.
Previously, Luskin and Nadig worked together at Barclays Global Mutual
Funds, where Luskin was chief executive and Nadig was chief strategy
officer. Luskin, who has written two books on options, has also been a
market maker on the Chicago Board of Options and the Pacific Stock
Exchange as well as a hedge-fund manager. He and Nadig started
OpenFund to appeal to mutual fund investors who want the same
up-to-the-minute information they can get from online stock trading.
Call it the day trader of the mutual fund world. OpenFund's portfolio is
heavy in technology (58% of assets) and telecom (20% of assets). Its
current top three holdings are Qualcomm (QCOM), JDS Uniphase
(JDSU) and Global Crossing (GBLX). It also has short positions in AT&T
(T), MarketWatch.com (MKTW) and Micron Technology (MU). But
don't expect those positions to be in OpenFund tomorrow. While some
funds can go days without shifting a position, OpenFund can barely go half
an hour.
By market close Friday, MetaMarket's chief strategist, Maurice Werdegar,
had posted details of 16 OpenFund trades. (Werdegar was most recently
CEO of a restaurant company. Luckily, he also worked at Robertson
Stephens & Co. from 1987 to 1990.) On Friday, two of those trades were
in a single security. For instance, at 9:46 a.m. the fund sold all of its S&P
Depositary Receipts (SPY), implying a negative outlook for the S&P 500.
But by 12:04 p.m., the fund was buying Spiders to cover its short position
in the S&P 500, implying a belief that the S&P 500 had bottomed. Sound
a bit neurotic?
Well, consider the fund's activity on Sept. 13. That day it liquidated its
800-share position in Qualcomm at 9:41 a.m., then bought back half of
the position for $4 less at 12:10 p.m. On the same day it traded in and out
of Pixar (PIXR), Apple founder Steve Jobs' animation company, four
times, the last trade making up for an earlier screwup when 500 shares
were bought when they should have been sold.
Luskin defends the fund's quick-trigger finger: "I don't understand why the
holding period of the investment is meaningful. Day trading is an insult when
it's applied to someone at E*Trade but a compliment to market makers.
Life runs on Internet time today. Entire bull-bear cycles can be played out
in one day."
Of course, Luskin isn't claiming to have all the answers. He is happy to
hear the opnions of shareholders on OpenFund's message boards.
Sometimes, those opinions aren't entirely positive. One shareholder
dubbed "Zig" wrote recently, "I feel we have a number of stocks in this
portfolio that really have no upside. We are buying at the top of the
market, looking October and a probable fall correction in the face and
saying, 'No problem, let's load up."'
Then again, sometimes the investor messages are useful. Early one Sunday
morning in October, frequent poster "Hiflyer" pointed out the merits of
American Superconductor (AMSC), a maker of superconducting chips for
power applications. Luskin added the stock to the portfolio the next
morning. It's been down since then. But Luskin is hanging on.
So far, OpenFund's fast-trading strategy is working. The fund is up 7.9%
since its inception on Aug. 31 vs. a loss of 2.5% for the S&P 500. Of
course, that's before taxes are taken into account. But if you want to know
about its tax exposure, just check the Web site.
For more information and analysis of companies and mutual funds, visit
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