Fund families offer advice on weathering crisis

In wake of attacks, investors are urged to remain calm

Dollars & Sense

September 23, 2001|By Dan Culloton | Dan Culloton,MORNINGSTAR.COM

Many fund families have responded to the terrorist attacks Sept. 11 with paeans to the durability and resiliency of the American spirit and vows to press on. Much of this communication has been taking place over the Internet.

Vanguard Group Chairman John J. Brennan noted on his company's Web site that "the stock markets in Europe and Asia have for the most part held up well" and that many of Vanguard's clients "have demonstrated patience, understanding and focus on the long-term."

The message on Tweedy, Browne's Web site was typical: "As investors, we should be focused on long-term considerations, as markets are driven over the long term by fundamental economic factors. We think it is important to bear in mind that markets, economics, and people have proven time and time again to be extraordinarily resilient."

It is in fund sponsors' interests to buck up shareholders. Investors who sell fund shares out of fear and despair take away fee-generating assets from fund advisers.

Some of the most impassioned and persuasive pleas for calm, however, came from fund managers who have their money on the line with their shareholders and intend to keep it there.

Nearly every online message expressed sorrow and reiterated that rescuing survivors and offering aid to the injured and grieving should be everyone's first priority. But they also declared their confidence in the future.

"While we cannot predict the severity of the short-term reaction ... we are confident in the market's resilience and the long-term prospects of the quality companies that we own," wrote Selected American and Davis NY Venture manager Christopher Davis, who promised that his firm's "employees and [the Davis] family, who are the largest shareholders in our funds, will ride out this storm invested shoulder-to-shoulder with our customers."

In addition to attempting to bolster investor spirits, fund companies such as Fidelity Investments used the Internet primarily to impart key information about access to accounts and funds, and placing trades.

They also tried to assure shareholders that the terrorist attacks had not impaired their businesses or personnel. Such assurances came not only from New York-based companies such as Davis Selected Advisors and Tweedy, Browne & Co., but also from companies a few time zones away, such as Denver-based Janus Capital, whose chairman, Tom Bailey, said, "Our day-to-day business operations were not directly affected by this event."

Oppenheimer Funds, which had offices in the World Trade Center, breathed a sigh of relief, saying, "We are thankful that all of the 598 Oppenheimer Funds employees in our World Trade Center offices are safe."

Despite the reassuring words, the country and the rest of the world are sailing into uncharted territory, many managers said.

"The tragedy of September 11th has changed the world profoundly, and in ways we can't really fathom," wrote Third Avenue Value manager Marty Whitman.

The inveterate vulture investor has believed for more than two decades that he would do well in the equity and debt markets as long as he restricted his investments to "geographic areas marked by both political stability and an absence of violence in the streets."

"Bluntly, it is evident now that no place on earth is exempt from violence in the streets," Whitman wrote in a letter to shareholders posted on the Third Avenue Funds Web site.

Whitman expects people who invest on the margin, with borrowed money, and who try to time the market or invest according to macroeconomic trends instead of corporate fundamentals to panic.

No matter what happens, Whitman and his firm plan to adhere to their discipline of buying well-capitalized companies at good prices and hold them for a long time, no matter which way the macroeconomic winds blow.

"Our operating assumption is that we are investing with a three- to five-year time horizon," he wrote. "Most of the securities we will attempt to acquire are issues we already own, albeit a few new names may creep into various portfolios. We hope pricing will be such that given our three- to five-year view, we can reasonably look forward to earning compound annual returns of say 30 percent to 40 percent on the money to be invested."

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