One thing fund investors know for sure about 2008: We won’t have the Ameritor Investment fund to kick around any more. Inarguably the worst mutual fund in history, it’s one of hundreds of funds that were snuffed out of existence in 2007.
Mutual funds aren’t human, so their death — whether by liquidation or merger — does not diminish us the way the passing of a friend or loved one does. While there is no mourning period, it would be wrong to ignore for whom the bell tolled, if only because some funds leave behind a legacy of lessons for fund investors.
With that in mind — and in the spirit of the televised retrospectives showing famous people who shuffled off this mortal coil in the last 12 months — it’s time to pay final respects to some noteworthy funds that passed in 2007.
- Ameritor Investment: The Ameritor funds started life in the 1950s as the Steadman funds. They were nicknamed the “Dead Man funds,” because they finished dead last in their peer group, losing money all the way, for years. Ultimately, Steadman Oceanographic — which was supposed to profit from companies that were farming and building communities at the bottom of the sea — and Steadman Technology ran through almost all of their money.
When Charles Steadman died in the late 1990s, his daughter took over. The funds had no prospect for growth, but she had no reason to shut them; the double-digit management fee was like a personal annuity, up to the point where it bled the fund to death. When the Securities and Exchange Commission finally filed paperwork stating that the fund “had ceased to be an investment,” the loss over the last 10 years was 98.98 percent, turning a $10,000 investment into $102. It took about four decades for the losses to drive shares down to less than a penny, but Ameritor got the job done, and then kicked the bucket.
It’s a lesson in just how bad mistakes can be if you insist in hanging on to them. Sadly, this fund is survived by a sister, Ameritor Security Trust (ASTRX), with performance that is “better,” but only when compared to its all-time loser sibling.
- Chicken Little Growth: This offering “for people who are afraid of the market,” should have made people afraid of funds. The manager used a focused portfolio with more than half of assets in just three stocks, changing the portfolio just once a year; it got him off to a great start — a 41 percent gain in the fund’s first 12 months — but couldn’t last. There were problems over the already-high expense ratio — customer accounts were temporarily hit up by management to pay bills — and eventually the stock-picking (or lack thereof) brought the sky down on the whole thing.
- Reynolds and Reynolds Opportunity: When I first met manager Fritz Reynolds at an industry conference in the late-1990s, he had built a fabulous track record using a style that was attracting a lot of attention. Among the money that flowed in his direction was my wife’s first Roth IRA money. But somewhere near the market’s peak in 2000, Reynolds clearly had changed; he started believing his own press clippings, as if his strategy was infallible. I told my wife to close her account.
It was a good call, because Reynolds Opportunity gave back all of the 60 percent it gained in 1998 and its 70 percent pop in 1999 in a horrendous run from 2000-2002. Despite a huge bounce-back of 77 percent in 2003, the fund never really recovered; at the end, its 10-year annualized gain was just 1.02 percent, lagging almost all of its peers.
Reynolds fund wasn’t much better, finishing in the bottom 10 percent of its peer group in five of its seven years. Reynolds Blue Chip survives those two, but seeing as how these sister funds always moved in sync, one has to wonder why.
The lesson for investors: Don’t confuse a bull market for brilliance.
- Boyle Marathon: In 2000, as the market started into the bear market, Boyle Marathon was the top large-cap blend fund, with a gain of roughly 85 percent. It was the fund’s only appearance atop the charts, as performance proved uninspiring from then on. Along with the Reynolds funds, Boyle proved that any fund can get to the top of the charts for a short stretch of time; finishing the race and building a reputation are something completely different.
- The n/i Numeric Investors funds: It was a sad end to a fine shareholder-friendly fund family that took a quantitative approach to running money, but the guys behind the Numeric Investors funds felt that they needed to focus on the rest of their money-management business. The funds represented $450 million of more than $13 billion under management. The closing meant a significant capital gains problem for investors who held Numeric in taxable accounts.
The moral of the story is that when mutual funds are an afterthought to a firm’s money-management business — and this happens a lot — shareholders must forever worry that managers could just walk away.
- Guerite Absolute Return: This fund never made it to its first birthday, Management said the fund was built to make money in all market environments but, upon further review, management turned out to be the former chief financial officer of a Carolina-based sub-prime mortgage lender, and the environment for anything even remotely tied to sub-prime was all wrong.
- Firsthand Health Sciences fund: The Firsthand funds have a lousy record doing what they do best — traditional tech funds — so it was unclear why anyone would gravitate to this fund when it opened in 2006. Apparently, no one did, as management threw in the towel after 18 months. Just because a fund company thinks they’ve got a good ideas doesn’t mean they’re right.
- Symphony Wealth Ovation: When this fund opened in early 2006, its college professor-turned-chief-portfolio-manager boss said it “combined the power of a dynamic asset allocation framework to take advantage of changing market conditions, with the exceptional control that ETFs provide, and have created an investment strategy that we believe gives investors a better opportunity to realize the efficient frontier we’ve all heard so much about.”
Investors didn’t get it, and they didn’t buy it. That’s the lesson this fund leaves behind: If you can’t explain to your loved ones — in less than a minute — what a mutual fund does, don’t expect the fund to support your loved ones.
Chuck Jaffe is senior columnist for MarketWatch and the host of Your Money Radio (www.yourmoneyradio.com). He can be reached at firstname.lastname@example.org or at Box 70, Cohasset, MA 02025-0070.