If misery loves company, then a bunch of the miserable characters in the fund industry are about to get chummy.
Last week, this column covered half of the 2000 Lump of Coal Awards, given to the fund industry's bad children, who deserve nothing more than a bituminous bangle in their Christmas stocking this year. Now it's time for the rest of the story.
Lumps of Coal are bestowed on the industry's miscreants for behavior, attitude, or performance that is offensive, disingenuous, reprehensible, or just plain stupid.
And the losers are:
San Diego lawyer James Krause, for the dumbest settlement of a class-action suit against a fund company, ever.
Krause sued Alliance Capital Management in 1995, on behalf of investors who felt misled about the strategy of Alliance North American Government Income fund (which tanked due to investments made in bonds from a completely different continent).
The case was tossed out of court in 1996, restored on appeal in '98, and dismissed last December. Rather than appeal again, Krause opted in March to settle. Here's what he settled for: Aggrieved shareholders get to invest a collective $250 million in Alliance funds without paying a sales load. (Imagine the people suing Firestone settling for a discount on the same type of Firestone tires all over again.) That's a victory?
Fund manager Bob Markman, for hurting shareholders while trying to save face.
Markman's Multi-Funds spent a few years as laggards (and he lost a well-publicized five-year bet with Vanguard Group founder Jack Bogle in which he wagered that he could beat an index fund). So, he declared, "This time, it's different." Scrapping a diversified approach, Markman went whole hog into domestic large-cap and technology investments, publishing a book on his new philosophy that ridiculed conventional thinking.
It sounded great until tech stocks tanked - and Markman's funds did, too. All three rank in the worst 10 percent of their peer groups this year, down 12 percent to 20-plus percent. Worse yet, his old strategy actually might have beaten the index this year.
Janus, for failing to walk the talk.
In January, Janus Twenty, Mercury, Global Life Sciences and Global Technology put a combined $930 million into a private placement of Healtheon/WebMD stock. The private stock came with restrictions forcing Janus to hold it for a set period.
By the time Janus coerced WebMD into filing papers to let the funds dump the stock, Janus' loss stood at $750 million. What's outrageous, however, is that Janus, which always says how deep its managers dig and how its managers are so adept at finding great stocks that others miss, actually needed help from others to get out from under its own mistake. Very smooth.
Any of the 182 funds that had triple-digit returns in 1999 and advertised that performance early this year.
The big print screamed, "This could happen again!" The small print says "Probably not." In some cases, the tiny type didn't even give that much of a warning.
Of the 182 members of the Century Club in 1999, only six are positive this year, and many have losses exceeding 40 percent.
Janus (again) for failing to see the obvious.
Company execs for years downplayed talk that Janus funds had so much overlap that they would move as a pack in a down market.
They were wrong. Fourteen of Janus' 16 stock funds sport losses for this year, including 10 funds with double-digit declines.
Warburg-Pincus Japan Small Company fund, for piling on.
As if a 60-plus percent loss wasn't bad enough, this fund made two enormous capital gains distributions (one representing more than half of the fund's value). Plenty of miserable funds managed to lose money and create a tax bill for investors in the process, but performance this heinous deserves special mention.
Ryan Jacob, whose magic touch proved to be an illusion.
Jacob left one of those 182 big winners from 1999 to start his own Internet fund. As the manager of the first Internet fund ever, investors assumed he was a genius and could re-create his stellar performance. He did nothing to dissuade that thinking.
Jacob Internet is off more than 70 percent this year, making it the very worst performing stock fund for this year.
The Heartland funds, the year's biggest loser, for creating the worst management debacle the industry has seen in years.
With the junk bond market drying up, two Heartland municipal junk funds were forced to re-price bonds - assigning new values for the holdings because the fund company had them on the books being worth more than they could sell for - not once, but twice. Both funds suffered losses of more than 50 percent as a result.
This lump could go to Heartland for hiring a manager with a history of mispricing other funds, for letting that manager put 90 percent of the fund into unrated bonds, or for barely saying a word to aggrieved shareholders. Throw in a few more indignities, and it's clear that this firm and its managers should be forever buried beneath the black stuff.
Chuck Jaffe is mutual funds columnist at the Boston Globe. He can be reached by e-mail at jaffe@globe.com or at the Boston Globe, Box 2378, Boston, Mass. 02107-2378.
