Industry's bad actors merit lumps of coal for stupidity, inaction

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December 12, 2006|By Charles Jaffe | Charles Jaffe,MarketWatch

In most circumstances, bad little boys and girls get lumps of coal in their Christmas stockings in the privacy of their own homes. In the mutual fund business, however, coal is delivered to bad actors in public. Right here.

It's my 11th annual Lump of Coal Awards which, today and again next week, recognize managers, executives, firms, watchdogs and other fundies for action, attitude, performance or behavior in 2006 that was offensive, disingenuous, duplicitous, reprehensible or just plain stupid.

The 2006 Lump of Coal Awards go to:

Management at Abacus Bull Moose Growth, for the year's tackiest marketing tactic.

This small fund has tried to reflect the strength and vigor that Teddy Roosevelt saw in the creature that became the namesake of the Progressive political party he founded, and it has done reasonably well in its short history. But that didn't draw assets, so management recently changed the fund's name to Roosevelt Anti-Terror Multi-Cap. Playing on fear -- and implying that other funds might be "pro" terror -- is small-minded; in this case, it turned an issue that was shaping up to be a solid fund into a gimmick.

Congress, for fiddling while fund investors got burned.

A good year on the stock market has led to the return of big capital gains payouts by funds, generating big tax bills for investors with taxable accounts. Legislation that would have let investors defer taxation of reinvested capital gains until shares are sold died in committee. Despite the support of dozens of politicians from both parties, companion bills in the House and Senate never even made it to the discussion phase.

The RiverSource funds, for having a minnow swallow a whale and telling investors that it's still a minnow.

In March, as part of a fund-family consolidation, the 61-year-old, $1.8 billion RiverSource Stock Fund was merged into RiverSource Disciplined Equity, a fund that had one-tenth the assets and one-twentieth the history. Clearly, the combined fund has more characteristics of the whale than the guppy, but that didn't stop anyone from holding on to the better recent track record of the small fish, no matter how poorly it reflects the merged fund's real potential or past.

The oversized management team at Columbia Asset Allocation fund, for failing to put money where its mouth is.

One benefit of recent fund reforms is improved disclosure, and one of the best bits of information is how much money fund managers invest in the funds they run. Of the 25 managers named as part of the Columbia Asset Allocation team, not a single one has so much as a buck invested in the fund.

There are plenty of managers who do not invest in their own funds, but when 25 managers pass on the same fund, it shows the kind of "teamwork" that should get investors to put their money elsewhere.

Kevin Landis, for summoning -- and sinking -- the Black Pearl.

Landis, who earned his fame -- but not much fortune for shareholders -- at the Firsthand funds, earned a Lump of Coal in 2005 for starting the Black Pearl funds. He seemingly was hoping that investors wouldn't recognize that the new issues were run by the same guy who powered Firsthand to some of the worst performances in the industry over the past five years.

But just like the Black Pearl buccaneer ship in Pirates of the Caribbean, Landis' moonlighting gig was all bones and no flesh. His strategy for Black Pearl Long Short resulted in losses of nearly 20 percent in less than a year, at which point directors pulled the plug; Black Pearl Focus remains, but it has been mediocre thus far.

The Chicken Little Growth Fund, for proving that sometimes the sky really is falling.

It's bad enough that this tiny, 15-month-old, St. Louis-based fund was charging an expense ratio of 3 percent, but management recently filed paperwork saying that it is unable to live up to its promised expense waivers and reimburse the fund for certain operating costs.

The fund recalculated its share price to pay for those costs, shaving off about 32 cents per share on Nov. 30. Now the new total expense ratio is just north of 10 percent, and the most likely thing to be falling is the fund's net asset value.

This Chicken Little looks unlikely to cross the road; the fund has stopped taking new investments and liquidation is a strong possibility.

Next week: Scandal-tainted coal burns hot, plus the Lump of Coal Mis-Manager of the Year.

Chuck Jaffe is senior columnist for MarketWatch. He can be reached at jaffe@marketwatch.com, or at Box 70, Cohasset, MA. 02025-0070.

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