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Funds skip the late show
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A weekly column about the fund industry June 4, 1999: 6:02 p.m. ET
Managers don't expect any changes when Nasdaq extends trading hours
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - When the Nasdaq market opens its doors to evening trading, fund manager Scott Black will be packing up his briefcase and heading home.
Black, manager of the Kobren Delphi Value Fund, scoffed at the idea that extended trading hours would have any impact on how he does business. But he says it will light a fire under the "gambling fever" already gripping individual investors.
"There's a casino gambling mentality among investors today," Black said. "I think it's a disservice to the efficiency of the capital markets."
The Nasdaq last week announced plans to extend trading to as late as 10 p.m. The New York Stock Exchange also has a plan in the works, though it said it is postponing the change to later hours until next year.
By law, managers price their funds once a day, and almost all of them choose to do it at 4 p.m. ET when the U.S. market closes, said Chris Wloszczyna, a spokesman for the Investment Company Institute, a Washington trade group.
Funds report the daily figures to the National Association of Securities Dealers (NASD) by 5:50 p.m. ET, which transmits the data to news services.
"I'm not sure there will be any industry-wide impact," Wloszczyna said. "If a fund is priced at 7 p.m., it would not get into the next morning's daily newspapers."
Vanguard and Fidelity Investments said they'll continue to price their funds at 4 p.m.
"Nothing is going to change," said Vanguard spokesman John Demming. The company doesn't foresee staffing or other changes to handle the later hours.
But Fidelity spokeswoman Debra McConnell said the fund giant is studying the issue.
"The extended trading hours raise questions that we can't answer until we know what the complete plans are," McConnell said.
Fund managers already can trade after hours through Instinet, a brokerage for institutional investors. They also can buy and sell international securities when the U.S. market is closed, and currency markets are open around the clock.
Plus, many people in the mutual-fund industry doubt whether later Nasdaq hours will deliver the level of volume -- and liquidity -- that's necessary for the larger trades that managers typically make.
"The bulk of the market makers will be going home, so the market won't be as deep," Black said. "There won't be much liquidity. These are individuals -- onesies and twosies. When I buy, it's substantial positions."
Whitney George, portfolio manager at Royce Funds, thinks part of the move towards later trading hours is the momentum of a strong bull market. Investor interest in late hours may die in a bear market.
"Should we have a correction, we might not have this enthusiasm for extended hours," George said.
Funds are also long-term investments that don't worry about day-to-day movements, especially value players like Royce Funds and Black's Delphi Management Inc.
Value investors buy stocks that are cheap and overlooked by Wall Street. They don't try to time the market or latch onto the latest hot stocks.
"I don't know that extended trading hours would change anything," George said.
And will George be at his desk when the Nasdaq changes its hours?
"I already work late," he wisecracked.
Paul Matthews, manager of the Matthews Korea Fund, said he's seen tremendous devastation in South Korea from the financial crisis that rocked Asia. But if there's any silver lining, then perhaps it is that the turmoil triggered a string of economic reforms that have helped turn around the economy, he said.
The Matthews Korea Fund class I shares and class A shares are up 53.92 percent and 53.69 percent, respectively, year to date as of Thursday, according to fund-tracker Morningstar. The two funds are ranked 5th and 6th among all international funds in that time, according to Morningstar.
The funds earned 96.15 percent and 95.19 percent, respectively, in 1998.
"Korea has led the way in responding to the crisis with reform and deregulation," Matthews said. "It stands out among Asian countries for its response."
President Kim Dae-jung is the most reform-minded leader ever elected, and he's pushed through banking system changes, accelerated privatization and opened up the market to international investment, Matthews said.
Among the fund's top holdings, Matthews thinks Samsung Fire & Marine Insurance holds promise since many Asians are underinsured. Another big name is Korea Electric Power, which is becoming more efficient thanks to privatization and competition.
"Prior to this crisis, Asia was rigid," Matthews said. "Now it's less centralized … but human suffering was significant."
There are only a handful of mutual funds that try to limit the tax pinch, but Vanguard is trying to change that. The fund giant has filed papers with the Securities and Exchange Commission for a new tax-managed international equity fund.
The Vanguard Tax-Managed International Fund would be the first tax-conscious fund that focuses on global markets, the company said.
May isn't shaping up to be a great month for fund performance, according to preliminary results from CDA Wiesenberger, a fund researcher in Rockville, Md. Fund categories almost across the board lost money during the month, the data shows.
At the top of the list, the precious metals sector gave up 13.35 percent. Even an old market reliable like the aggressive growth funds category was off 1.10 percent, according to the statistics.
But there were a few winners in some parts of the market that have been pretty beaten down. Real estate funds reaped the best results, up 2.75 percent, while small cap funds were up 1.64 percent.
Lastly, here are some weekly performance figures for those beat-down small cap funds, according to Lipper Analytical Service.
Tied for first place at the top of the list are Gabelli Westwood SmallCap Equity Fund, retail shares, up 3.35 percent for the week May 27 to June 3 and up 5.07 percent year to date; O'Shaughnessy Cornerstone Growth Fund, up 3.35 percent for the week but down 0.93 percent year to date; and Berger Small Company Growth Fund, up 3.32 percent for the week and up 6.88 percent year to date.
At the other end of the spectrum, the biggest loser for the week was HomeState Select Banking and Finance Fund, down 1.58 percent for the week but up 27.94 percent year to date; followed by Riverfront Small Company Select Fund, class B shares, down 1.54 percent for the week and off 5.53 percent year to date; and Baron Asset Fund, off 1.48 percent for the week but up 14.38 percent year to date.
-- Staff writer Martine Costello covers mutual funds for CNNfn.com. If you have any comments about mutual funds, you can contact her at cnnfn.interact@turner.com
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