Sure Chuck Jaffe's Christmas-themed 'Lump of Coal Awards' might not be as clever or insightful as our own Thanksgiving focused Turkey Awards, but they're an entertaining pre-holiday week read nonetheless.
We especially like his 'Inability to Recognize a Bad Fund When They See It' award giving to the directors of the Franklin Real Estate Securities Fund:
Franklin Real Estate Securities is off more than 20% this year, but even when this fund has made money, it has badly lagged its peers. Directors acknowledged as much in the fund's annual report, noting 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% 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 will dance, the very same paragraph said that "the board found such performance to be acceptable."
Of course, the real travesty with a poor performing giant fund is not with their boards (how many fund boards really care about lagging performance anyway?) nor the semi-blind shareholders, but with the brokers who sold it. No load funds almost always shed assets when performance slips – even long time winners will lose shareholders after a few bad quarters. Until absolute returns tank hard, load funds can maintain a healthy, commission paying, asset base in near perpetuity.
That said, this fund has recently seen mass shareholder redemptions, which should cause a huge taxable distribution to the remaining shareholders when the fund goes ex-dividend tonight. Talk about dammed if you do, dammed if you don’t – either sell the fund and possibly owe a back end sales load (C,B class shares), or stick around and get hit by some other investor’s taxable gains in a year the fund is down by double digits.
Jaffe's Lumps of Coal
Sure Chuck Jaffe's Christmas-themed 'Lump of Coal Awards' might not be as clever or insightful as our own Thanksgiving focused Turkey Awards, but they're an entertaining pre-holiday week read nonetheless.
We especially like his 'Inability to Recognize a Bad Fund When They See It' award giving to the directors of the Franklin Real Estate Securities Fund:
Franklin Real Estate Securities is off more than 20% this year, but even when this fund has made money, it has badly lagged its peers. Directors acknowledged as much in the fund's annual report, noting 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% 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 will dance, the very same paragraph said that "the board found such performance to be acceptable."
Of course, the real travesty with a poor performing giant fund is not with their boards (how many fund boards really care about lagging performance anyway?) nor the semi-blind shareholders, but with the brokers who sold it. No load funds almost always shed assets when performance slips – even long time winners will lose shareholders after a few bad quarters. Until absolute returns tank hard, load funds can maintain a healthy, commission paying, asset base in near perpetuity.
That said, this fund has recently seen mass shareholder redemptions, which should cause a huge taxable distribution to the remaining shareholders when the fund goes ex-dividend tonight. Talk about dammed if you do, dammed if you don’t – either sell the fund and possibly owe a back end sales load (C,B class shares), or stick around and get hit by some other investor’s taxable gains in a year the fund is down by double digits.
LINK