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.
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, 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 for years. Steadman Oceanographic was supposed to profit from companies that were farming and building communities at the bottom of the sea. The funds had no prospect for growth, but managers 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. The loss over the past 10 years was 98.98 percent, turning a $10,000 investment into $102. It’s a lesson in just how bad mistakes can be if you insist in hanging on to them.
• 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 and the sky came 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: 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 to 2002. At the end, its 10-year annualized gain was just 1.02 percent, lagging almost all of its peers.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. 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: A 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 moral: When mutual funds are an afterthought to a firm’s money-management business, shareholders must worry that managers could just walk away.
• Guerite Absolute Return: This fund never made it to its first birthday. It had ties to the subprime market. Enough said.
• Symphony Wealth Ovation: When this fund opened in early 2006, its college professor-turned-chief- portfolio-manager boss wowed folks with a barely comprehensible description. 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 cjaffe@marketwatch.com
