Nothing gets me in the holiday spirit more than poking fun at the fund world’s miscreants for a year’s worth of blunders and buffoonery.
My two-week holiday tradition, called the Lump of Coal Awards, is now in its 12th year of finger-pointing at the bad boys and girls of the fund business, the ones deserving an inky chunk of carbon in their Christmas stocking for 2007.
And the rocks go to:
CATEGORY: Failing to walk the talk
Cox has talked like a champion of the consumer, speaking favorably on a number of issues, most notably on the reform of the 12b-1 fee. He promised to get these reforms done in 2007, and none of them are coming to pass this year. Some, such as the rule requiring an independent board chairman, now appear dead.
CATEGORY: Failing to be ready
In Lipper’s “mixed-asset target 2010 funds” category, Putnam Retirement Ready 2010 is dead last in year-to-date performance. Another Putnam target-maturity fund, Retirement Ready 2020, occupies the cellar in the 2020 group. Ditto for the 2030 fund in its category and the 2050 fund in the 2030+ group.
Having the bottom-feeder in target-maturity date — even over a period as short as 12 months — is tough to do. Until those numbers change, these funds are ready for nothing.
CATEGORY: Failing mutual-fund arithmetic
The idea here — according to the firm’s aptly named website, — is to use a market-timing strategy based on an unemotional, quantitative approach. As of Nov. 30, the fund’s 2007 loss of 6 percent ranked dead last in Lipper’s “flexible portfolio” category, dragged down by operating expenses of roughly 3 percent. Apparently, someone at the fund forgot that costs and return numbers are the critical math for shareholders.
CATEGORY: Giving investors funds with that Happy Meal
This gimmick fund built for children actually declared July “McDonald’s Happy Meal Month,” giving anyone who opened a new account a certificate good to receive a burger, fries, drink and small toy from Mickey D’s. With a $250 minimum initial investment — plus performance that has lagged behind three-quarters of all large-cap funds — the cost on that burger is quite the whopper.
CATEGORY: Inability to recognize a bad fund when they see it
In the fund’s annual report, directors note that “the Fund’s total return for the one-year period, as well as for the previous three-, five- and 10-year periods on an annualized basis was in the lowest quintile” of its peer group. That’s putting lipstick on a pig, because the fund actually ranks in the bottom 5 percent of its peer group for all of those time periods, according to Morningstar.
Adding eye-liner, a party dress and a suggestion that this pig can dance, the very same paragraph said that “the Board found such performance to be acceptable.”
CATEGORY: Not fighting the good fight
The agency allowed former Putnam top dog Larry Lasser to settle a lingering fraud lawsuit for a $75,000 fine. Lasser had a $78 million severance package from Putnam — on top of tens of millions earned there — and the company agreed to pay his legal fees.
If the best the SEC could do was a one-fingered slap on the wrist, it should have tied this up in court for years, effectively keeping Lasser in limbo. By settling on the cheap, the SEC sent a message that managers have no reason to fear breaking the rules.
Chuck Jaffe: cjaffe@marketwatch.com
