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Mutual Funds
A fund goes live on the Net
September 17, 1999: 5:46 p.m. ET

MetaMarkets.com's OpenFund claims to be the first interactive mutual fund
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - You've watched Victoria's Secret models strut on the Internet. You've bought books, bid for hotel rooms and dialed up stock trades on the Web from your living room.
     And now, you can go online to watch a mutual fund in action.
     MetaMarkets.com, a San Francisco start-up, has launched an interactive mutual fund called OpenFund to give investors a virtual window into how managers do their jobs.
     The fund, with $6.3 million in assets, is up 1.68 percent since it started Aug. 31.
     "The mutual fund industry doesn't even know the Internet exists," said Don Luskin, a co-founder. "I've always been aware how isolated and disempowered the average investor has been. The Internet has leveled the investment playing field."
     The fund lists every trade on its Web site, along with an explanation by a member of the management team. The site has a Web camera on its San Francisco trading desk 24 hours a day.
     "We want you to be an informed consumer," Luskin said.
     The management team is participating in online chats and bulletin-board discussions, and is sponsoring a MetaMarkets.com "think tank," with feedback from people who are prominent in the Internet world.
     Among those participating in the think tank are Nicholas Negroponte, director of the Media Lab at MIT and author of the book Being Digital, and David Isenberg, a scientist and expert on networking.
     "These are the kind of people the typical Web audience reads about," Luskin said.
     The portfolio managers will be open to ideas from the public, he said.
     "Most managers only listen to a tiny clique of investment advisers," Luskin said.
     "We want to go below the radar screen and above the radar screen. The fundamental work of investment management is filtering. The question is what do you filter. We believe nobody knows more than everybody. We don't want to limit our idea pool. We're not into credential-ism. We're not being exclusive."
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     The fund invests in 48 companies that are part of the "new economy," high-growth businesses that are at the cutting edge of technological, social or economic change.
     Top holdings include Atmel Corp. (ATML), a maker of memory and logic circuits, and telecom star MCI WorldCom (WCOM).
     You'll also see familiar names like Gap (GPS), Lucent Technologies (LU) and America Online (AOL).
     In one recent posting, manager Maurice Werdegar said he added to the fund's holding of biotech PE Corp.-Celera Genomics (CRA) because of "continued intraday strength against the backdrop of a very unattractive market performance."
     The site lists the size of the trade, the price and the brokerage that handled the transaction. Luskin said investors can look into the site's archives to review any trade in the history of the fund.
    
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     The Web camera allows people to zoom in on different parts of the trading desk. About 4,000 people a day are customizing it, often choosing to focus on a trader's computer screen, he said.
     Luskin hopes the site will lure more people to invest.
     "The camera is a way of making an intangible experience more real," Luskin said. "It's certainly real for us. We're on this trading desk all day, so we're inviting people to visit with us."
     Luskin, 45, is a Wall Street insider who has a slightly different background. He dropped out of Yale after one year but has spent 20 years in investment management and was previously chief executive of Barclays Global Mutual funds and vice chairman of Barclays Global Investors.
     Scott Cooley, an analyst at Chicago fund-tracker Morningstar, said he's in favor of a fund giving out more information. By law, funds have to release holdings twice a year, but the level of disclosure varies widely in the industry. Some funds release only what they have to, while others issue quarterly reports and detailed information on their Web sites.
     "It's interesting what they're doing," Cooley said about OpenFund. "But if the fund gets to any size it will be tough to stick to the same principles."
     Big fund companies have been plagued by "front running," where investors try to predict or second-guess the trades a fund plans to make. The advantage for a smaller investor is the ability to buy a stock before the price starts to rise. But it can spoil a big fund's investing strategy and hurt returns.
     "Front running is a big problem," Cooley said. "There's no way Fidelity or another big shop could do this."
     Other reaction was mixed.
     "There's certainly a demand for it (an interactive fund), if you consider the number of e-traders today," said Bill Dougherty, an analyst at Kanon Bloch Karre in Boston. "It's addressing the active Internet investor."
     Another analyst, Burt Greenwald at Greenwald & Associates in Philadelphia, said he doubts the online access will offer any real value to investors.
     "It's like watching a peep show," Greenwald said. "Do you want to watch a portfolio manager pick his nose 24 hours a day? It's a gimmick."
Fidelity's fund supermarket has added another name - American Century Investments -- to its growing list of mutual funds available to people without a transaction fee.
     American Century has agreed to pay Fidelity 0.25 percent to 0.35 percent a year on funds it sells through the supermarket. The change means that consumers won't have to pay a transaction fee that ranges from $75 to $250.
     Many fund companies, including American Century and T. Rowe Price, have resisted paying the supermarkets a fee, said Greenwald, the fund analyst from Philadelphia. American Century's move shows the growing influence of fund supermarkets in the industry.
     "American Century has relented, which demonstrates the power of no-load fund supermarkets," Greenwald said.
     Fidelity's FundsNetwork program offers about 1,100 funds from 140 fund families. It most recently added PIMCO Funds, Acorn Funds, Rydex Funds, and Amerindo Funds, among others.
Van Kampen Investments and a former executive recently agreed to a censure and fines totaling $125,000 stemming from claims about a fund's 1996 performance.
     The SEC said Van Kampen failed to disclose information about the impact of hot IPOs on its Growth Fund's 1996 results. The commission said the company raised unrealistic expectations about future returns based on stellar past performance.
     Van Kampen accepted the fine and censure without admitting or denying the findings.
     "There is no allegation that the fund's performance was in any way manipulated," the company said in a statement.
     The case is noteworthy because a number of hot technology and Internet funds in the last year have boasted about soaring returns, Greenwald said.
     "All of them better look to this kind of disclosure," Greenwald said.
     Funds say that "past performance is no guarantee about future performance," but how often do investors really believe it?
But at least one Internet fund is boasting that it won't be delivering a big tax hit to investors at the end of the year.
     Monument Internet Fund says it will avoid most capital gains by using a buy-and-hold approach and adding to positions slowly over time. The fund, with $47 million in assets, is up 82.8 percent year to date as of Aug. 31, according to Morningstar.
     Anybody who owns the latest hot funds that are delivering triple-digit returns should keep in mind that they could be in store for a giant tax tab at the end of the year.
And now, here are a few winners and losers for the week in Lipper Analytical Services' large-cap growth fund category.
     At the top of the list is Bear Stearns S&P 500 Stars Fund, class Y shares, up 0.23 percent for the week Sept. 9 through Sept. 16 and up 12.75 percent year to date; followed by Bridgeway Social Responsibility Fund, off 0.08 percent for the week and up 7.37 percent year to date; and Evergreen Select Strategic Growth Fund, off 0.93 percent for the week but up 16.37 percent year to date.
     Among the top losers was Excelsior Large Cap Growth Fund, down 3.86 percent for the week but up 17.54 percent year to date; followed by UBS Investors U.S. Large Cap Growth Fund, down 3.52 percent for the week but up 11.23 percent year to date; and Brinson Large Cap Growth Fund, class N shares, down 3.43 percent for the week but up 11.66 percent year to date.Back to top
     -- 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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