As Wall Street tried to make sense of Bear Stearns' near-collapse yesterday, some investors began calculating their exposure to the crisis and potential losses in their mutual funds.
Companies that manage large funds, including Baltimore's Legg Mason Inc., Vanguard Group Inc. and Fidelity Investments, plowed millions of dollars into Bear Stearns. They are likely to take a beating on their holdings, but the impact is not cut and dried. Most mutual funds have minimal exposure to Bear Stearns in their portfolios, although some carry larger stakes.
But the bailout of Bear Stearns is spreading across the broader market and it hurt the stocks of other financial firms yesterday, worrying many investors about future losses. Some clients called their money managers yesterday after having seen their portfolios suffer declines during recent months. And amid talk of a recession, consumers feel squeezed by those losses and higher bills for energy, food and other costs.
Taken together, yesterday's developments left several investors concerned about wider economic repercussions.
"The good news is that we're talking only a dozen or so funds with a meaningful exposure to Bear Stearns," said Jeff Tjornehoj, a senior research analyst at mutual-fund tracker Lipper Inc. "On the other hand, if you end up holding [mutual funds with a larger exposure], you have a sick feeling in your stomach this morning."
Several clients yesterday called Timonium financial planner David Berman to find out if they owned Bear Stearns through their mutual fund holdings. Some had heard that Legg Mason Value Trust had a sizable position in the stock, Berman says, and they wanted to measure their losses.
Legg Mason money manager Bill Miller's Value Trust Fund - whose 15-year streak of beating the Standard & Poor's 500 stock index ended in 2006 - owned 2.3 million shares, or 2 percent, of Bear Stearns as of Dec. 31.
Those shares at Friday's close were valued roughly at $69 million, compared with $203 million at the end of the year. If the $2-a-share price for Bear Stearns from J.P. Morgan Chase & Co. is approved by shareholders, that stake would be worth $4.6 million.
Value Trust's Bear Stearns stake, however, represents 1.2 percent of its total portfolio, according to documents filed with the Securities and Exchange Commission. In contrast, J.P. Morgan Chase & Co. constitutes 4.7 percent of the Value Trust portfolio's assets.
