It's time for the ninth annual Lump of Coal Awards, where, I drop an inky chunk of carbon on the bad boys and girls of the fund world. It takes more than wretched performance or...
It’s time for the ninth annual Lump of Coal Awards, where, I drop an inky chunk of carbon on the bad boys and girls of the fund world.
It takes more than wretched performance or mere involvement in a scandal to earn a lignite trophy this year. Lumps of Coal recognize managers, executives, firms and industry watchdogs for attitude, performance, action or behavior that is offensive, duplicitous, disingenuous, reprehensible or just plain stupid.
The 2004 Lump of Coal Awards go to:
Manager Mario Gabelli for reopening the Gabelli ABC fund in March, when 70 percent of the fund’s assets were already in cash.
Gabelli ABC specializes in merger and acquisition arbitrage; Gabelli closed the fund to new investors in late 2002 because so few deals were being made that he couldn’t put his cash to work.
Even if Gabelli anticipated a pickup in mergers, bringing in new cash before he could put existing dollars to work was bad.
While Gabelli’s firm stood to make more money in management fees, shareholders were being watered down even more, to where nearly 80 percent of the fund is now in cash.
ING, for holding a “going out for business” sale. Weeks ago, ING started hyping on its Web site that it would close its small- and midcap value funds to new investors on Dec. 31.
ING is encouraging investors to rush in as if this is the last chance to catch the train to Prosperity which could bloat the funds and diminish future performance.
Morningstar, for talking out of both sides of its mouth. Late in September, Morningstar acknowledged that the Securities and Exchange Commission was investigating incorrect return data published by Morningstar for nine days in March concerning the tiny Rock Canyon Top Flight Fund. Morningstar accepted responsibility, fixed the error and apologized.
But days later, in e-mails hyping its premium membership service, Morningstar officials wrote: “Some vested interests would like you to believe that data is a commodity. But as you know, data can be manipulated. Some providers can be sloppy with their data too.”
You don’t fess up to blunders one day and talk smack about the competition the next. That’s just wrong.
The Securities and Exchange Commission, for pursuing the flimsy case against Morningstar in the first place.
Tarnishing the firm’s reputation over nine days’ worth of sloppy data provided by the fund’s transfer agent feels like a payback for the heat Morningstar has put on regulators for mediocre oversight.
The board at Transamerica, for putting shareholders’ interests second. In February, Transamerica fired Warren Isabelle as subadviser for the IDEX Isabelle Small Cap fund, the firm’s top performer in 2003, and replaced him with insiders.
The move cut the fund’s fees but forced a change in the fund’s name and objective, and left investors wondering for whom Isabelle toils. (Answer: “It’s not for thee.”)
Isabelle was even willing to cut fees. Investors may have saved pennies, but Transamerica now gets to keep all of the fees on the $430 million fund, rather than sharing them with the guy whose name and performance actually attracted the money in the first place.
Next week: The Lump of Coal (Mis)Manager of the Year.
Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at email@example.com or Box 70, Cohasset, MA 02025-0070.