BOSTON – You might prefer a Yule log, fruitcake, eggnog or gift card, but nothing says "Happy holidays" to me quite like the chance to make fun of a bunch of fund industry miscreants.
It's a holiday tradition called the Lump of Coal Awards, which today and again next week celebrates its tenth anniversary by sticking a lignite lance into the fund world's bad boys and girls, the ones who deserve nothing more than an inky chunk of carbon in their Christmas stocking.
Lump of Coal Awards recognize managers, executives, firms, watchdogs and other fund-industry types for action, attitude, performance or behavior that is offensive, disingenuous, duplicitous, reprehensible or just plain stupid.
The 2005 Lump of Coal Awards go to:
Management of the TIAA-CREF funds
In August, TIAA-CREF sent retail shareholders a proxy noting that management had been losing money running their funds; if investors did not approve a fee increase, the firm threatened to close or liquidate the funds.
Low fees attracted TIAA-CREF's core investors in the first place, so management could not have been shocked when the fee hike was defeated. But after investors suggested that they would rather see the funds liquidated than pay another dime in management fees, TIAA-CREF responded by floating the question again, with shareholders paying the costs for the new vote.
The BlackRock funds
When BlackRock bought State Street Research & Management early this year, it did the usual merge-and-consolidate with its new charges. In the process, however, BlackRock folded State Street Research Investment Trust -- the nation's second-oldest mutual fund -- into one of its own issues, thereby murdering an eight-decade track record.
That's both tragic and stupid, because the State Street fund had an average annualized return of more than 12%, making it the ultimate, 80-year case study in how fund investing can work best. BlackRock could have merged the funds in a way that preserved the record, and its obvious marketing benefits.
This is like buying a house, finding a live dinosaur in the garage and shooting it to create a parking space for the mini-van.
When Brandweek announced its 2005 "Customer Loyalty Awards," Putnam Investments won top honors among fund firms, with Janus finishing tied for second.
Between poor performance and involvement in widely publicized trading scandals, the firms have topped the list of funds facing redemptions, with shareholders removing billions of dollars since late 2003. That's not classic "loyalty;" maybe Brandweek thinks it's amazing that these firms have any shareholders left at all.
PowerShares Capital Management
PowerShares is the king of the goofy and trendy in the exchange-traded fund (ETF) world. This year, it started several gimmicky ETFs, PowerShares Lux Nanotech, PowerShares Water Resources and PowerShares Dynamic Food and Beverage.
Trendy funds typically make for good conversation, but bad investments. Smart money managers recognize that, and don't create products that set investors up for a fall.
Kevin Landis of the Firsthand Funds
Landis runs the Firsthand funds, which he has done with consistent mediocrity since the bull market peaked in 2000 (all five Firsthand funds rank in the bottom third of their peer group for the last five years, according to Morningstar Inc.)
In late September, however, Landis and Firsthand filed a registration statement to start the Black Pearl funds, two new issues that will use a quantitative management approach. (It is unclear whether the funds take their name from the rare jewel, or from the buccaneer ship in Pirates of the Caribbean.)
Managers start new funds all the time, but normally as an addition to their line-up or as a subadviser to another firm. Creating a whole new fund family is extreme, suggesting that Landis wants potential shareholders to miss the Firsthand connection, since it's mighty hard to see a manager's lukewarm track record and think you are buying a gem.
The Chicken Little Growth fund
If you judged this new fund by its silly name, you would expect a bear-market issue designed to protect you when the sky is falling. If you judge the fund by its prospectus, however, the premise is that when the sky is falling, it's time to buy sky. That's value investing. If you judge this tiny new issue by its holdings, it's a large-cap growth fund.
Confidence in management is falling! Confidence in management is falling!
(Second place in the worst-name-for-a-new-fund contest goes to the recently filed Bread & Butter Fund, because growth typically is a diversified portfolio's bread and butter, but this is a value fund. And as for those Black Pearl funds .... Aaaargh!)