More Respect>
Upstart Fund OpenFund Lets
Investors Offer Up Stock Picks
By CARRIE LEE
THE WALL STREET JOURNAL INTERACTIVE EDITION
Got a great undiscovered stock you think might be the next Microsoft?
MetaMarkets.com wants to hear about it.
The upstart mutual fund company is encouraging investors to share their
investment picks on its Web site. But some analysts question why
professional money managers need to solicit advice from amateur
investors.
MetaMarkets, a South San Francisco fund company that boasts an
impressive roster of backers, on Aug. 31 launched OpenFund, a tiny
aggressive growth fund that takes data disclosure to a new level.
At the fund company's Web site, visitors can access a 20-minute delayed
list of the funds holdings and detailed information on each stock, including
the price the fund paid for the shares and performance figures. Visitors also
can view details on all trades that were made by fund managers for each
stock. The site includes a scrolling list of the latest trades, and a brief
rationale for each, as well. However, they don't provide intraday updates
of the fund's net asset value.
But the Metamarket site's most unique feature by far is its open solicitation
of investing ideas from shareholders. Investors are invited to suggest new
holdings to the portfolio managers via the site's online message boards.
"The investment-management process is
always about getting ideas, most funds are all
looking in the same places. How can you
expect to win if you don't have a different
approach?" says Donald Luskin, chief
executive officer and co-founder of
MetaMarkets.
Mr. Luskin, formerly vice chairman for
Barclays Global Investors and chief executive
of Barclays Global Mutual Funds, says he
posts between five and 20 messages a day on
the message boards. Indeed some of the
boards seem to be dominated by his posts.
"I'm constantly scrolling, looking for ideas," he says. "A good portfolio
manager is a filter, traditionally people look to brokers for ideas, I want to
cast my filter in a wide way."
Mr. Luskin says that while OpenFund doesn't always act on investor input,
participants have in some cases shed light on undiscovered stocks.
One example he cites is Harris & Harris Group, a small, New York
venture capital firm with no formal analyst coverage. One investor
suggested the firm on a MetaMarkets message board in mid-October,
when the stock was trading around 4. "We did our research, got to know
the CEO, and kept buying shares," says Mr. Luskin. On Friday, the stock
closed at 7 5/8, putting OpenFund's current stake at $208,163, a 69%
gain.
Mr. Luskin founded OpenFund with Barclays
veteran David Nadig. Eli Neusner, of the
Spectrem Group, a management consulting
firm in San Francisco, offers strategic analysis for the fund. Head trader
Maurice Werdegar, former chief executive of restaurant company Blue
Chalk Corp. and an associate at Robertson Stephens, actively manages the
fund with Mr. Luskin. All have invested in OpenFund.
In addition to Mr. Luskin, Messrs. Neusner, Werdegar and Nadig take an
active role in the message boards, both reading and posting messages.
Other members of MetaMarkets "think tank" who participate on the
OpenFund boards and have contributed seed capital, include Nicholas
Negroponte, co-founder of the Massachusetts Institute of Technology's
Media Lab; Nolan Bushnell, co-founder of Atari Corp.; and Peter
Sprague, chairman of Wave Systems and former chairman of chip-making
giant National Semiconductor. Some of these members also have stakes in
OpenFund, although Mr. Luskin declined to elaborate.
OpenFund is financed by an investor group led by the venture arm of the
Greenwich, Conn., trading firm Weeden & Co. Investors include Messrs.
Negroponte and Sprague, as well as Scott Ryles of Merrill Lynch and
Charles Crocker of BEI Technologies.
OpenFund hasn't yet built up a large asset base. Through Friday, the fund
had $13.1 million in assets, with a median account value of about $4,000.
Mr. Luskin says a little over half is money from the management team and
their friends and family. He adds that he's the "single largest investor by a
long shot."
Mr. Luskin says that Weeden & Co. was the lead investor in
MetaMarket's initial $2 million round of financing, adding that the company
has recently completed a second "much larger" round of financing.
MetaMarkets isn't the only online fund company that is using this off-beat
approach to customer relations. In November, Stockjungle.com of Culver
City, Calif., launched the Community Intelligence Fund, which allows
visitors to its site to suggest new holdings to the fund's portfolio manager.
Holdings for each fund are updated and displayed on the site daily.
Asset-management experts generally applaud the idea of allowing investors
to see what's happening in their fund on a daily basis, but some question
the value of a money-management team that seeks advice from novices.
"When I invest with a fund company, the presumption is the manager and
analysts are adding value, and making good picks that I am not capable of
doing myself," says Peter Di Teresa, senior editorial analyst at Morningstar,
a Chicago fund tracking firm. "I don't see what, if I were a shareholder,
suggestions I could toss out that would be a new idea. If it was new, that's
a little disturbing."
But others argue that the so-called open forum idea has merit. "It makes
perfect sense in the context of the Net, which can support a community.
The key will be getting people to contribute valid input," says Jon Zeschin,
a Denver mutual-fund consultant. "In the large-cap arena, research that an
investment-management firm puts together is going to be more valuable
than something you might get from the general public, but in the small-cap
arena you might find some good ideas [on message boards]."
Despite the grass-roots approach, some say the fund isn't that different
from many others. "Pretty much all of the Janus funds are invested in similar
kinds of stocks, even though they aren't talking about it in that way," says
Mr. Di Teresa. "You'll see a lot of the same holdings, there are so many
funds that have a lot of these same stocks, things like Disney, eToys, Gap,
Home Depot, and Microsoft."
He adds that Morningstar doesn't track OpenFund's performance because
the fund's asset base is too small. But nonetheless, "he says, "we're not
seeing anything distinctive here."
Mr. Luskin maintains that OpenFund's objective is to make money for its
shareholders. "We're doing that, we don't have a priority that we have to
hold obscure stocks," he says.
Since its inception in late August, OpenFund has returned 59.76%. That
compares with just 7.44% for the Standard & Poor's 500-stock index in
the same period.
For now, the no-load fund is absorbing all expense fees. A management
fee, capped at 1.45%, will kick in February 2000.
The fund, which trades under the symbol OPENX, is "dedicated to capital
appreciation through aggressive-growth investing," according to the
MetaMarkets site. The fund invests in companies that are poised to benefit
from the so-called new economy, described by in the fund's prospectus as
companies that are capitalizing on the way technology is changing the
business world. Several other fund companies, such as the New Economy
fund and the Marsico Focus fund, have created funds that focus on this
philosophy.
Mr. Luskin says OpenFund's holdings are very actively traded and future
performance is expected to be volatile. The fund reserves about 10% of
assets for momentum, or day trades, and of the 80 positions the fund held
on Friday, seven were short positions -- bets that the stock price will go
down.
"We fully expect to have a high turnover fund, in a market like this if you
don't your missing stocks that go through cycles," says Mr. Luskin. "You
have to be a day trader with some of your capital, I don't think 'day trader'
is a dirty word."
Not everyone subscribes to that philosophy. Edward Spiegel, a manager
for a manufacturing company who lives in Melville, N.Y., was a beta tester
for the MetaMarkets site, but says he decided against investing in
OpenFund.
"He's had a tremendous record so far, but I don't agree with all of his
trading techniques," he says of Mr. Luskin. "They trade an awful lot, it's not
like a typical mutual fund. They take a couple of points here and there; I
like to buy good companies and wait."
The 80 companies in the OpenFund portfolio range from familiar names
like MCI WorldCom and Qualcomm to more obscure companies, such
as tiny Celera Genomics Group, a Norwalk, Conn., genetic-research and
consulting firm.
Mutual fund experts says that while the open-forum concept can work
when a fund is small, problems can arise if the fund attracts enough assets
to move markets. "If they did attract a lot of assets and they tried to move
a significant amount of stock, they would have an issue with people trading
around their movement," says Denver consultant Mr. Zeschin.
|
