Mutual Fund Breaking News
Business Week's Best Managed Funds List
Business Week published their list of the best managed mutual funds, chosen after "in-depth, face-to-face interviews with managers to quiz them on investment practices." The winners are:
Cramer Talks Too Much
Jim Cramer, host of CNBC's Mad Money and the inspiration for scores of investors betting too much of their nesteggs on individual stocks, might have some explaining to do to the Securities and Exchange Commission:
In the video from TheStreet.com's "Wall Street Confidential" Webcast, Cramer boasts about manipulating the price of a high-flying stock down, and even acknowledges that doing so might have been illegal. The video is making the rounds on YouTube.
'A lot of times when I was short, I would create a level of activity beforehand that would drive the futures. . . . It's a fun game,' Cramer said in the Webcast, which was moderated by TheStreet.com Executive Editor Aaron Task.
Cramer later said that 'no one else in the world would ever admit that, but I don't care.'"
Yeah you can't do that.
Over the Hedge
The risk checklist for hedge fund investors keeps growing:
- Fabricated performance – check
- Manager runs off with fund capital – check
- Leveraged bets blow up because something that normally doesn’t happen in the market does – check
- Market neutral strategy turns out to be market spiral – check
- Buy on weakness philosophy turns out to be double down – check
- Manager turns out to be a complete nut – gulp!
According to regulators, a successful hedge fund manager tried to draw a slightly more disturbed individual out of the internet woodwork to attack his ex-girlfriend.
A wealthy New Canaan hedge fund manager posed as his former mistress and posted an Internet ad seeking someone to rape and abduct her, authorities said.
Albert Hsu, 43, who was arrested Friday, pretended he was the woman in an Internet ad that indicated she was a willing participant in a sexual fantasy, prosecutors said Monday.
The ad included the woman’s photograph, her home and work address, license plate number, which train she takes to work and which car she usually sits in, authorities said."
WaMu Sued
Washington Mutual is accused of steering investors into their own mutual funds when better alternatives were available:
A class-action lawsuit was filed today against Washington Mutual, alleging that it deceived investors by steering them to the bank's own portfolio of mutual funds which were less attractive than alternative funds.
The complaint alleges that Washington Mutual and its subsidiary companies had an undisclosed "preferred list" of funds, and issued misleading disclosures and omissions regarding a side agreement designed to improperly promote WM Financial Services to favor Washington Mutual's proprietary funds, and thereby drive sales, regardless of alternatives for their individual retail investors."
Who would have thought that some guy at the bank isn't looking out for your best interests?
Market Drops, Fund Investors Run
Skittish mutual fund investors bailed out of mutual funds after last week's troubled waters:
Investors withdrew a net $2.39 billion from global equity mutual funds tracked by TrimTabs Investment Research in the week ended Thursday, a sharp reversal from the $2.73 billion that flowed into the funds during the previous week.
The decline came after the U.S. stock market on Tuesday suffered its biggest one-day point decline since immediately after the terror attacks of Sept. 11, 2001. The sell-off was triggered by a combination of factors, including a 9% decline in the Chinese stock market, persistent worry about U.S. subprime loans and the Japanese yen's sharp appreciation."
This year is looking like a classic example of misplaced fund investor enthusiasm. We saw one of the biggest months of inflows to stock funds in January – just in time to experience this week's drop.
Unlike past drops in stocks, this one started abroad. Of course, unlike previous bull markets, fund investors have been much more enamored with funds investing abroad than previous bull markets. It would not surprise us at all to see fund investors bail on funds in droves – perhaps $100 billion in a few weeks of withdrawals – if the global stock markets fall over 10% in the next few weeks. Much of our fund investing philosophy and metrics are based on avoiding the fund investing herd. We think investors should lighten up on stock funds when others are buying, and increase one's allocation when others are bailing out.
Red Letter Day
Yesterday's Dow drop leave you jittery? Relax. This too will pass (and in fact the Dow, as of 12:28 PM EST, has already bounced back a bit today). Chuck Jaffe at MarketWatch puts it in perspective:
If the stock market's big decline Tuesday made you nervous, try the following: Take a red marker and make a big X on Feb. 27 in your calendar. Make no other marks or notations. Then go about your regular business for the next 10 months.
When the end of the year rolls around -- assuming you review your calendar before you either file it or toss it -- see if you remember why you actually made Tuesday a red-letter day.
Chances are the 416-point decline in the Dow Jones Industrial Average will pass, just like so many others before it. And what investors need to keep in mind is that there have been many others; while Tuesday's drop represents the seventh-largest point drop in Dow history, at 3.27% it is just the 37th-largest percentage decline day since 1950. In percentage terms, if you go back to 1900, you'd have another 200 days where the Dow suffered bigger losses.
...The point of marking the calendar is that virtually every big market drop becomes routine in time. Nearly 20 years after the market crash of 1987, for example, there is not a crowd of people claiming that they would be able to retire today, rather than working a few years past age 65, if they had only been out of the market on that particularly bad day. The market plunged more than 22% on Oct. 19, 1987."
We do think that yesterday's drop does mark the end of higher risk or alternative investments beating more traditional ones. From here on out we predict the S&P 500 will outperform emerging markets like China.
Today's Market Drop is Your Fault
The financial press will cook up dozens of reasons why the market fell so hard, so fast today (the Dow was down over 500 points or over 4% before finding some footing). Most will point toward China and tell you that nothing has changed since yesterday, stay the course. But something has changed. High-risk assets are finally done leading the market. The music has stopped, and investors are looking for chairs.
Downplaying risk and focusing exclusively on upside is why fund investors have sunk billions into higher-risk fund categories like emerging markets, Asia, Latin America, and high-yield bonds. It’s why an ETF like iShares FTSE/Xinhua China (FXI) has brought in billions in recent months.
As of 1:17 p.m. today, a China fund, Oberweis China Opportunities Fund (OBCHX), is the fourth most viewed fund page (out of more than 20,000) on MAXfunds.com. This tells you more about the causes of today’s drop than all the financial analysis you’ll read about the rest of the week.
Fund investors have a bad habit of getting most excited about a certain sector or fund category shortly before in sinks. The last time we saw big fund inflows was early in 2006, and in the following months the U.S. stock market slipped, and emerging markets flat out tanked –though both came back later in the year.
This year fund investors have already put around $40 billion into stock funds – most of it into international funds, and a lot of that into emerging markets.
Nobody knows where the market is going in the short run, but it is likely that all the fund categories attracting the most money early this year will perform the worst in coming months. Maybe this isn’t the end of the great high risk asset bull market, but today’s action shows investors the risk of adding new money late in the game. ...read the rest of this article»
Independent Fund Board Rule Kaput
Chuck Jaffe at MarketWatch writes:
Alas, when it comes to the debate over whether mutual fund boards should have chairmen and a supermajority of directors who are independent of the management company, it appears that fund interests are going to win out.
In 2004, the Securities and Exchange Commission passed a rule requiring all funds to appoint an independent chairman and to make three-quarters of the board of directors independent. The rule came in the aftermath of the rapid-trading scandals of 2003 and was universally applauded by consumer groups. But the Investment Company Institute and several big-name fund firms -- most notably Fidelity Investments -- railed against it, saying it was unnecessary and costly.
The rule was rejected twice in federal appeals court, which cited the SEC's administrative process as a big part of the problem. So the agency reopened the discussion.
In December the SEC released two reports from the Office of Economic Analysis examining the costs and benefits of having a chairman and 75% of the fund's board independent from the investment adviser. Both sides of the debate had until March 2 to file comments.
And while there is no official word from the SEC yet, it is pretty clear talking to agency insider's that the issue is dead."
LINK
While these independent fund boards are a great idea in theory, in practice we don't think the loss of this rule will be much of a negative for fund investors. These so-called independent directors would still have been appointed by the fund companies, so the true extent of their independence would have been debatable. Furthermore, the rapid-trading scandals of 2003 that this rule was a result of are probably not the kind of thing a once-a-quarter board of directors would have had uncovered. This rule would also have added significant costs to running a mutual fund, which would have unfairly hurt small and new fund companies.