Mutual Fund

Stash your 401(k) statements in the drawer. The third quarter was one of bailouts, near-collapses and takeovers on Wall Street that left many mutual funds down in the dumps. Investors had few places to turn for safety. Even money-market mutual funds, considered a bedrock investment that is never supposed to lose money, fell victim to soured mortgage investments when the Reserve Primary Fund fell below $1 last month in what is commonly referred to as "breaking the buck." All of that left mutual-fund investors with losses in the third quarter.

Legg Mason's Bill Miller produced the best-known mutual fund streak, beating the Standard & Poor's 500 index for 15 years in a row until his streak ended in 2006. Now Baltimore's other mutual fund streak is at risk, although this isn't necessarily a terrible thing. T. Rowe Price's Capital Appreciation Fund is the only stock mutual fund that didn't lose money for investors during 2001 or 2002, the worst of the last downturn. Through 2007 it produced positive yearly returns for 17 years in a row. But so far this year, the fund is down 14 percent and will need a brilliant turnaround to avoid a loss.

Stockbroker Bruce Alderman's client returned home from a trip just in time to watch the stock market shed the most points ever in a single day and to hear that his bank, Wachovia, was being acquired by Citigroup. Yesterday morning, the client rang up his broker, telling the receptionist that the call was "urgent." "I want to make sure I'm OK," the man told Alderman, president of Chapin Davis brokerage in North Baltimore. Alderman looked up the man's account, telling him his portfolio was down about 1 percent after the market plunge.

Legg Mason Inc.'s star stock picker Bill Miller said yesterday that he is making adjustments in managing his well-known Value Trust mutual fund in light of its weak performance and millions in lost assets. Miller said he would spread out his concentrated portfolio to include broader allocations across sectors. He may buy mega-cap stocks that are trading at depressed prices, that generate cash and are at the top of their industries. The moves appear to be deviations for Miller, whose Value Trust owns fewer stocks than most other funds.

The Treasury Department announced yesterday that the government for the first time will insure money market mutual funds to discourage investors from pulling trillions of dollars from a bedrock investment that isn't supposed to lose money. Investors have grown increasingly skittish this week after the oldest money market fund, Reserve Primary Fund, announced that investors will lose some principal because of losses on debt of the collapsed investment bank Lehman Brothers. It was only the second incident of investor losses in the 37-year history of money funds.

The mutual fund, time-honored champion of small investors, is facing a fast-rising challenger in the exchange-traded fund. They are fighting for your investment dollars. Although ETFs are much smaller, some experts predict they ultimately will win the long-term confrontation. "In a year such as 2008, when returns are low or negative, every 50 basis points [half of a percentage point] make a difference," said Tom Anderson, head of ETF research at State Street Global Advisors in Boston.

Beginning today, The Baltimore Sun's stock market and mutual fund information can be found online at www.baltimoresun.com/business instead of in our print edition. We have redesigned our daily print business report to offer brief stock information that focuses on Baltimore area-based companies and major employers, along with the performance of major stock indexes. We also will offer an expanded list of local stock and mutual funds in Sunday's Money & Life section. We are making these changes as part of the reinvention of The Baltimore Sun and to use our news pages to continue our mission to report and explain local business news.

The second quarter started out with investor optimism that the worst of the credit crisis would soon be over. But June gave way to record-high oil prices, heightened concerns of inflation and predictions about more losses at major financial institutions. For mutual fund investors, the up-and-down ride left them just about where they started the quarter on average, according to mutual fund tracker Lipper Inc. U.S. diversified stock funds overall gained 0.13 percent. The bright spots were sector funds invested in natural resources and commodities.

In times like these, investors would like to take some comfort that they are investing like the pros. Indeed, it's comforting to know that the guy running your mutual fund has his money - and his family's cash - mixed into the same pool as yours. Alas, all too often, it's not, and the fund managers don't have enough belief in what they are doing to actually live by it. That's the conclusion to be drawn from a new Morningstar Inc. study that looked at how much managers invest in their own funds.

Investors are pouring billions of dollars into target-date mutual funds, and Baltimore's Legg Mason Inc. wants a piece of that budding market. Legg plans to launch its life-cycle funds in August, joining a litany of other firms trying to capture a flow of money that has increased 50 percent annually in the past several years, according to mutual fund tracker Lipper Inc. Assets in these mutual funds are managed based on specific retirement years like...