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Dec. 8, 2015, 8:52 a.m. EST

These dumb mutual fund moves failed investors in 2015

Presenting the 20th annual Lump of Coal Awards for the fund industry

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By Chuck Jaffe, MarketWatch

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He would have loved this one:

The Adaptive Allocation Fund filed a prospectus supplement in mid-November that took the unusual step of saying that, effective Nov. 30, the fund “will no longer operate a website, and any references within the Prospectus and SAI to www.unusualfund.com are hereby deleted.”

A fund isn’t obligated to tell shareholders about changes to its web site in its prospectus (or anywhere); it is obligated to do what it says in the prospectus, however, and the fund’s site was operational and up-to-date through the first week of December.

Fund officials said in a telephone interview that the notice was “erring on the side of caution” over compliance standards as the site converted from the control of the fund to being run by its registered investment adviser, and that the changeover took longer than anticipated.

Aberdeen Asset Management, for the most unnecessary compliance effort in investment history:

At the Morningstar Investor Conference in Chicago in late June, attendees were given a booklet sponsored by Aberdeen, and clearly labeled on the front cover as being “for investment professional use only. Not for retail investors.” The back cover of the booklet contained the same warning and a much longer disclaimer.

Aside from the covers and a few pages of advertising for Aberdeen, however, the booklet was just lined, blank pages. It was a notebook.

Maybe someone in Aberdeen’s compliance department felt that, faced with blank pages, investors’ minds would run wild, but the idea that blank paper requires a disclaimer shows just how far fund firms go, at shareholder expense, to make sure their butts are always covered.

Alerian MLP ETF, for a strategy that fools some investors into ignoring their pain:

The entire master-limited-partnership funds space has been covered in sludge so far this year, with the average fund down around 28.5%, according to Lipper. While results for Alerian MLP /zigman2/quotes/202900872/composite AMLP -1.25%   — down more than 30% — are far from the worst, this exchange-traded fund is one of a very few MLP issues that distributes more than the proceeds it receives in dividends. According to Gates Capital Corp., if the fund had stayed in line with the typical MLP fund, its payout would have been 5.3% lower than current levels.

With MLPs, many investors are using the payout to justify the pain. But the extra payout from Alerian MLP /zigman2/quotes/202900872/composite AMLP -1.25%   is a placebo, not a painkiller, and management hopes investors don’t notice.

Directors of the Toroso Newfound Tactical Allocation Fund, for failing to see that near-death experiences are seldom followed by happily-ever-afters:

Toroso Newfound Tactical Allocation is a tiny fund-of-ETFs with a “volatility-adjusted, momentum-driven model” — in this case a defensive posture that has led to bottom-of-the-barrel performance since it opened in early 2014. The small asset size and cost structure had management making a business decision to close the fund, anticipating a September liquidation; that course was then reversed, explained manager Michael Venuto, because business and market conditions had changed, creating a more favorable outlook.

While that optimism is admirable, directors are paid to look at realities, and there’s never been a fund that has gone from the brink of death to the top of the charts.

Coming next week: Big names, bad results, and the Lump of Coal Mis-Manager of the Year award.

Since 2012 (leading into 2015), 42 Lumps of Coal have been awarded to the likes of Allianz Global Investors, Bill Gross, Janus Capital, DoubleLine Funds, Morningstar (several times over), Fairholme Fund <PHRASE TYPE="COMPANY" SIGNIFICANCE="PASSING-MENTION"> <SYMBOL COUNTRY="US" TICKER="FAIRX"></SYMBOL> </PHRASE>  manager Bruce Berkowitz, Deutsche Bank, Royce Funds, Wells Fargo, PIMCO, Invesco, and the Securities and Exchange Commission. In all, there have been more than 200 Lumps of Coal awarded (this only became a two-week process in 2000, starting during Chuck Jaffe’s time at The Boston Globe and continuing since he joined MarketWatch in 2003.

Check out these previous Lump of Coal Awards columns:

2014: Part 1

2014: Part 2

2013: Part 1

2013: Part 2

2012: Part 1

2012: Part 2

US : U.S.: NYSE Arca
$ 26.92
-0.34 -1.25%
Volume: 3.55M
May 28, 2020 4:00p
US : U.S.: NYSE Arca
$ 26.92
-0.34 -1.25%
Volume: 3.55M
May 28, 2020 4:00p

Chuck Jaffe is a senior MarketWatch columnist. His work appears in many U.S. newspapers. Follow him on Twitter @MKTWJaffe.

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Chuck Jaffe is a senior columnist for MarketWatch. Through syndication in newspapers, his "Your Funds" column is the most widely read feature on mutual fund...

Chuck Jaffe is a senior columnist for MarketWatch. Through syndication in newspapers, his "Your Funds" column is the most widely read feature on mutual fund investing in America. He also writes a general-interest personal finance column and the Stupid Investment of the Week column. Chuck does two weekly podcasts for MarketWatch, and frequently makes guest appearances on television, and on radio shows across the country. He is the author of three personal-finance books. His latest, “Getting Started in Hiring Financial Advisors,” was published in the spring of 2010 by John Wiley & Sons.

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