By Chuck Jaffe, MarketWatch
The market may be up double-digits this year, but that didn’t put a stop to naughtiness around the fund world.
My list has been made, and checked twice, and it’s time for the 19th annual Lump of Coal Awards, my two-part holiday tradition of easing Santa’s burden by singling out the bad boys and girls of the fund industry who deserve nothing more than a lousy lump of lignite in their Christmas stockings this year.
While the long bull market has covered up a lot of performance flubs, Lumps of Coal are about more than just fund returns. The Lump of Coal Awards recognize managers, executives, firms, watchdogs and other fund-industry fumblers for actions, attitudes, behaviors, execution or results that are misguided, bumbling, offensive, disingenuous, reprehensible or just plain clueless.
And the losers are:
Management of the Giant 5 Total Investment System for thinking investors actually care what’s in a fund’s ticker symbol
In March, the ticker symbol on Giant 5 was changed from FIVEX to CASHX . While investors love fun, cute ticker symbols, they like performance better. Giant 5, which is a fund-of-funds, has badly lagged its peer group all year — and over the last five years, according to Morningstar Inc. — and is barely in positive territory.
If management wanted an appropriate ticker, they should have gone for SUCKX.
The Allianz Global Investors Retirement Funds, for the year’s most off-target performance
According to Lipper Inc., the year-to-date laggard in the “mixed-asset target 2015” category is Allianz Global Investors 2015.
Its 2020 sister fund is dead last in its peer group. As is the 2025 fund in its category. And the 2030, 2035, 2040, 2045 and 2055+ funds? All of them are hindmost in their asset classes, with gains of no more than 3.7% year-to-date for any of the lot.
Only the Allianz 2050 fund isn’t currently feeding on the bottom, but it’s close; it’s worst in the category for the last quarter, leaving it second-worst in the 2050 field this year. Relative to its eight target-dated siblings, that’s a winner.
Consistency, in the case of Allianz’ target-date issues, isn’t so much the hobgoblin of small minds, as it is the core problem of small retirement-savings portfolios.
Chuck Jaffe's Lump of Coal Awards
Marketwatch's Chuck Jaffe hands out his annual lump of coal awards. Is your favorite fund manager on the list?
The Sector Rotation Fund — run by Navigator Money Management — for failing to act its age
Navigator, which runs the Sector Rotation Fund /zigman2/quotes/205723379/realtime NAVFX +1.50% as well as a newsletter called “The Money Navigator,” got clipped in January by the Securities and Exchange Commission for “cherry-picking” the best recommendations and time periods to promote its services. Regulators took particular issue with a newsletter article that claimed the Sector Rotation Fund produced an average annual return of 10.25% from Aug. 31, 2002 through Oct. 31, 2011. Similar claims were made numerous times by the firm on its website, in newsletters and on fund manager and company president Mark Grimaldi’s Twitter account.
Alas, the fund didn’t exist prior to Dec. 30, 2009; claims dating back to 2002 were based instead on a model portfolio from one of Grimaldi’s other newsletters.
Regulators can be notoriously slow to catch stuff like that, yet they apparently found the error before Navigator officials did. Ironically, the fund’s real track record is pretty good; the only problem with that record is that it’s short. Time solves that; fund managers don’t get to use hypotheticals as some sort of fake ID to seem older than they really are.
Bruce Berkowitz, manager at the Fairholme Fund , for giving up more than a year’s worth of gains in a single day.
On Oct. 1, a court ruling sent the value of securities tied to Fannie Mae and Freddie Mac tumbling; as a result, Fairholme lost nearly 10% of its value in one shot, falling back to levels it had last seen in July of 2013.
Bets on Fannie and Freddie — two government-sponsored enterprises in the mortgage business — accounted for about 15% of Fairholme’s portfolio. Berkowitz has never apologized for being focused — and shouldn’t, but in this case, he had a big hand in his own demise, as the plunge (some of Fannie and Freddie’s preferred stocks were down up to 50%) came after Berkowitz lost a legal bid to force the bailed-out enterprises to share profits with private investors.
Berkowitz is determined to fight the fight, and may win it yet, but investors who were just feeling like he had regained the magic touch that made him one of Morningstar’s “Managers of the Decade” for the 2000s were rightly shaken. While Fannie and Freddie stocks have bounced back, the preferreds are still stuck, and Fairholme is down nearly 4% this year as a result.
Morningstar Inc. for the performance — or lack thereof — of its ‘Managers of the Decade’
We’re nearly halfway into the 2010s, and the top three managers of the ‘00s are anything but. Berkowitz and Fairholme rank in the bottom one percentile of the large-value category for the last five years. Bill Gross has now left PIMCO after below-average performance in three of the five years of the 2010s and only Morningstar’s third winner, David Herro of Oakmark International /zigman2/quotes/207122714/realtime OAKIX +1.48% , has managed to come away untarnished (though he’s well below his category average this year).
And that’s after Legg Mason’s Bill Miller spent the 2000s ruining the legend he made en route to becoming Morningstar’s “Manager of the Decade” for the 1990s.
This big prize may be the ultimate sign that past performance is no guarantee of future success.
The Geoff Bobroff Memorial Lump of Coal — found in a fund’s paperwork — goes to management of the CMG funds, for name-dropping
Bobroff — an industry consultant and former chairman of the Matthews Asia Funds — died of a heart attack last summer. He was an essential source to me over two decades, and the best and most-trusted source to two generations of journalists covering mutual funds; he also was my key sounding board for the Lump of Coal Awards for 18 years, and the only person I’ve ever known who liked digging through fund arcana looking for laughs more than me. He’d have appreciated this one:
Capital Management Group launched CMG Managed High Yield Fund /zigman2/quotes/210111782/realtime CHYOX +0.22% on Oct. 6, and filed to change the fund’s name — it becomes CMG Tactical Bond on Dec. 30 — and principal investment strategy a month later.
When managers can’t stick with what they’re doing for more than a month, their actions tell investors more than words just how much conviction they have in what they’re doing.
Fund managers with no money invested in their funds, because we’re better off giving them coal than our money
Several studies this year reported that more than half of all fund managers have zero invested in their own funds. Seriously, not so much as a single dollar.
There’s a big body of research showing that the more insiders’ interests are in line with yours, the better a fund’s risk-adjusted performance. Beyond that, however, there’s the principle of the thing: If managers are unwilling to eat their own cooking, you should be worried that they might be feeding you poison.
Next week: All things gross (as in Bill Gross), and the Lump of Coal Mis-Manager of the Year .