These deeds also deserve Lump of Coal Awards

Your Funds

Your Money

December 25, 2005|By CHARLES JAFFE

There's nothing better than seconds at a holiday feast. That's why it's time for another heaping helping of holiday jeers, the second installment in my annual Lump of Coal Awards.

It took more than dreadful performance to earn a spot in my 10th annual awards. Lumps of Coal recognize managers, executives, firms, watchdogs and others for action, attitude, performance or behavior that is offensive, disingenuous, duplicitous, reprehensible or just plain stupid.

Last week, I noted six situations where the recipients deserved nothing more than coal in their Christmas stocking this year. Today, it's the rest of the "winners."

The final 2005 Lumps of Coal go to:

The folks who run Merrill Lynch Global Value, for forgetting that funds should explain why past performance doesn't guarantee future results.

In October, this fund settled a lawsuit in a way that boosted its net asset value by 10.8 percent. Instead of being a just-above-the-middle-of-the-pack performer, Merrill Lynch Global Value (ticker MDVLX) now tops Morningstar's world stock fund category.

Merrill managers have refused to provide details of the settlement or the underlying lawsuit. That's a problem because there is no form of asterisk on the fund's performance record, meaning investors will chalk up current results to superior management, and believe this kind of top performance can be repeated, which is highly unlikely since a big push from a lawsuit is extremely rare in the fund world.

Shareholders in 13 Janus funds, for sleeping while management extended a helping hand.

Around Halloween, Janus sent a proxy statement asking shareholders to approve "performance fees" in 13 funds, including some big names like Janus Mercury and Janus Worldwide. Performance fees allow management to collect more when the funds perform well, but cut compensation during down times; you'll be hard-pressed to find a fund advocate who doesn't think they are the best way to compensate management.

But shareholders didn't vote and - while they only had a month to submit their ballot - their inaction forced Janus to extend the vote; shareholders, meanwhile, had to pay for additional mailings, which effectively raises the cost of their funds no matter what happens to future performance.

Janus, for not sweetening the pot just a little more.

If management truly wanted to live with the fast turn-around time on the vote, it might have cut its base fee, rather than simply adding a performance-tied bonus or pay cut to it.

If management drops fees when it moves to performance-based compensation, it sends a strong message that "We'll risk a pay cut because we're so confident we can deliver better returns." The statement Janus made was more like "We sure hope our fees don't go down."

Old Mutual Asset Management, for trying to slip one past shareholders.

In October, when James Gipson and the longtime team at the Clipper fund announced plans to leave at year's end, Old Mutual - which owns the firm running Clipper - said it would turn the fund over to Barrow, Hanley, Mewhinney & Strauss, another management company in its stable.

That would have been best for Old Mutual, keeping Clipper's revenues in-house. But in a rare show of backbone, the fund's independent directors actually decided to do a detailed search to find the best replacement manager.

They came up with Davis Selected Advisers, reducing Clipper's management fees and making Old Mutual look silly in the process.

The independent directors of the Amerindo Technology fund, for throwing investors out of the frying pan and into the fire.

When Amerindo Technology fund manager Alberto Vilar was carted off to jail in May for allegedly looting the account of a private client, shareholders were left in the lurch, waiting for a new manager.

In searching for a replacement for Vilar - whose record went from stellar during the bull market to miserable thereafter - directors chose Munder Capital. As a result, Amerindo Technology was folded into Munder Internet, a fund that not only has a mediocre long-term record, but which carries an obscene expense ratio of nearly 2.3 percent.

At least with Vilar, fund holders could believe that only the private clients were being robbed.

Garrett Van Wagoner, the Lump of Coal (mis)Manager of the Year for the third time in four years (he also was named runner-up in 2001).

Last year, Van Wagoner was tagged by regulators - who said he "betrayed the trust investors place in mutual fund directors and managers" - and forced to step down as president of his own management firm.

So his only job this year was to run money.

It didn't help.

Each of Van Wagoner's three funds is in the 99th percentile of its peer group in 2005, according to Morningstar. The two oldest funds also rank that low over the three- and five-year time horizons.

jaffe@marketwatch.com

Charles Jaffe writes for MarketWatch. He can be reached by mail at Box 70, Cohasset, MA 02025-0070.

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