|
Fallen fund manager stars
|
 |
January 9, 2002: 3:09 p.m. ET
As mutual funds get hammered, some high-profile managers get canned.
By Staff Writer Martine Costello
|
NEW YORK (CNN/Money) - Back in mid-2001 when tech stocks were taking a beating, Merrill Lynch fund manager Jim McCall was still bullish on the sector. In fact, more than half the portfolio of his Merrill Lynch Focus Twenty was in technology. One of the few non-tech holdings? Enron.
But by the end of year, Nasdaq losses and Enron's plunge into bankruptcy had taken its toll. The fund hemorrhaged 70 percent of its value and dropped to the bottom of its large growth category. And McCall, a former star manager whom Merrill had lured away from PBHG Funds, was out of a job.
"He made some really big bets that didn't work," said Russ Kinnel, an analyst at Morningstar. "Jim did an amazingly good job at PBHG and an amazingly bad job at Merrill Lynch."
The casualties of the bear market
The past two years have been brutal on mutual fund managers, particularly the stars who built their reputations on the 1990s bull market. Back then, they graced the covers of magazines and smiled at you from glossy billboards. At investment conferences, they were surrounded by devotees.
"You had dozens of mutual funds with triple-digit returns in 1999, and that catapulted some managers into the stratosphere," said Burton Greenwald of B.J. Greenwald Associates, a fund analyst from Philadelphia. "But their egos and their ability didn't correlate that greatly."
The list of casualties include Paul Meeks, who left Merrill Lynch Global Technology, Curtis Anderson, formerly of Dreyfus Founders Balanced Fund, and Howard Moss and Blair Boyer of Harbor International Growth Fund, according to Morningstar.
Whether or not they were fired, pushed out, or left voluntarily depends on whom you ask. But clearly their performance numbers were the major factor in their departure, analysts said.
Efforts to reach any of the managers were unsuccessful. Efforts to reach someone at Dreyfus were unsuccessful; Merrill Lynch and Harbor Funds declined comment.
Don't chase stars - or you could catch a falling star
At Merrill Lynch Global Technology, Meeks took over from a much riskier manager and turned the fund into a more diversified blend of large cap names, Kinnel said. Meeks delivered an 86.7 percent return in 1999, but that still left the fund in the bottom 20 percent of its tech fund category, according to Morningstar. It fell short of its peers in the next two years as well.
At Dreyfus, Anderson took over in late 1999 and took Founders Balanced Fund into technology stocks right before the tech correction of March 2000. "That was a train wreck," Kinnel said.
Harbor International had two great years in 1995 and 1996, but it took a dive in 1999 and never recovered, losing 25 percent in 2000 and 38 percent last year, according to Morningstar.
The problem with the star manager phenomenon is most people invest by looking in their "rear-view mirror," Greenwald said. They see the hottest performer and they want in. Unfortunately that means they've missed out on the triple-digit growth. They would have had to be investors before the good returns started.
But it's impossible to predict who will be the next Ryan Jacob, the former star manager at Internet Fund, which earned 196.1 percent in 1998 and 216.4 percent in 1999, Morningstar said.
Harder still is to know when to get out. For example, Jacob, who left Internet Fund to launch his own fund in December 1999, has seen nothing but red since then. Jacob Internet Fund lost 79.1 percent in 2000 and another 56.4 percent last year, Morningstar said.
The best advice is to build a diversified fund portfolio that includes large- mid- and small-cap stocks. Include growth stocks, which have rapidly-increasing earnings, as well as value stocks, which trade at a discount.
In other cases, funds will go through cycles of good and bad times. For example, Garrett Van Wagoner's five aggressive technology funds earned nearly 200 percent to nearly 300 percent in 1999, but have suffered ever since. Yet in the fourth quarter, the funds seemed to turnaround; Van Wagoner Technology, for example, earned 80.32 percent in the three months ending Dec. 31, 2001, Morningstar said. It means shareholders need to be prepared for volatility year in and year out - and they should only invest a small part of their portfolios.
Click here to learn more about your managers
Of course, there are a few managers who have hung onto their star status, like Bill Miller of Legg Mason Value Trust, who has beat the S&P 500 a record 11 years in a row. And Robert Stansky of Fidelity's flagship Magellan Fund, the nation's largest mutual fund with $80 billion in assets, is perhaps the most closely-watched manager on Wall Street.
If you do own one of the most recent funds to lose a former star, you might want to consider selling, said Kinnel. It will take time for a fund to get back on track after a manager departure. The fund company may also need to resolve structural problems first. 
* Disclaimer
Click here to send mail to Martine Costello
|
|
|
|
|
|
|
