These Managers Can Take Their Lumps . . . in Coal

Dear Santa,

While you’ve been making your list, I’ve checked the fund industry for behavior, attitudes or performance that justify leaving some lumps of coal this year.

Here are my nominees:

* Morgan Stanley, for the way it defines “unchanged.�

After buying Van Kampen American Capital, Morgan Stanley told Van Kampen Global Equity fund shareholders that the fund’s practices and policies would “remain unchanged.�

It then replaced the fund’s managers with people who jettisoned every stock and bought twice as many new issues using a different investment style.

* Warren Isabelle, for his moving performance in a year filled with jumpy managers. (As a general rule, you can give lumps of coal to all managers who bail out on their shareholders.)

Isabelle, the longtime manager of Pioneer Capital Growth, moved in January to Keystone Investments. Three months later, he fled to Prospect Street Asset Management to run a new closed-end fund. By December, Isabelle had moved again, starting his own firm with plans to open a new small-cap value fund next year.

The moral of the story: Do not ask for whom Isabelle toils. It’s not for thee.

* The managers running Schwab’s fund-of-funds offerings, for appearing disingenuous. None of the Schwab offerings owns any funds of Fidelity, Schwab’s biggest discount brokerage rival.

Schwab officials say they have reviewed Fidelity’s 270 funds and haven’t found any worth buying. Does that seem likely?

Say what you will about Fidelity, but it’s hard to put together an entire fund-of-funds family and not squeeze them in somewhere.

* Everyone, including shareholders, who fought for control of the Navellier Series Aggressive Small Cap Equity Portfolio, which wasn’t in the best interest of the industry.

Manager Louis Navellier planned to reposition the fund for marketing purposes but didn’t complete the paperwork on time or to the satisfaction of his board of directors.

The directors, in turn, fired him and hired MFS Funds to take over. It was the right move, but it angered investors, who bought the fund because of Navellier.

The Securities and Exchange Commission not only did not support the trustees, it let each side issue proxies containing information so outrageously different about the events of the case that one of them must have been lying. Investors sided with Navellier, who got the fund back from MFS.

Unfortunately, this may worsen one of the biggest problems in the industry: spineless boards that don’t look out for investor interests. Now star managers might think they can make their own rules.

* The folks running the Lindner Bulwark fund, which this year was as badly named as it was managed.

A bulwark is supposed to be a protective wall or barrier. Lindner Bulwark is supposed to “preserve capital in all markets.� The fund is down nearly 25% in 1997; that’s not preserving capital in any market, let alone one in which the average stock fund is up about 18%.

The fund made bad bets all around, most notably in gold. The best move it made all year came in November, when it whacked the co-manager. Alas, the other co-manager is still at the helm.

Yours in the spirit of the season,

Chuck

Charles A. Jaffe is mutual funds columnist at the Boston Globe. He can be reached by e-mail at [email protected] or at the Boston Globe, P.O. Box 2378, Boston, MA 02107-2378.