MutualFundWire.com: Odd Lots, June 15, 1999

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Tuesday, June 15, 1999

Odd Lots, June 15, 1999

Fidelity on pace to collect performance bonuses
From The New York Post
Last year Fidelity left roughly $250 million in fees on the table when many of the Boston Giant's funds failed to top their benchmarks over the prior three years. Not so this year, a number of its largest funds, including Magellan, Fifty, Cap App, and Balanced are on pace to deliver performance fee bonuses this year, according to Beth Piskora.

The WSJ excuses funds' poor performance
From The Wall Street Journal -- subscribers only
Over the past decade the average U.S stock fund has lagged the S&P 500 index by 3.6%, according to Morningstar. At the same time, the average foreign stock fund has topped the MSCI EAFE index by 3.4%. This doesn't mean that foreign stock fund managers are brilliant and domestic stock fund managers are dullard, argues the WSJ. Domestic funds have an average market cap only one-third the size of the index, prompting even Gus Sauter, the man in charge of Vanguard's famous index fund, to admit that comparisons between most funds and the index are unfair. Still, active funds don't do much better when compared to the Wilshire 5000 index which may be a better yardstick -- the lag it by 2.5%. The WSJ offers the usual knock against the EAFE, it is too heavily weighted to Japan.

Net brokers stocks plunge
From The Wall Street Journal -- subscribers only
Schwab's stock followed Internet stocks downward yesterday with a drop of 10.9%. The decline came as the broker revealed that trading volume at Schwab in May was 28% below levels in April. Still, volume was 78% higher than a year ago. (In comparison, volume on the Nasdaq was off 17%). The drop cuts Schwab's PE ratio to just 93 based on trailing earnings and 63 times next year's predicted earnings. The paper also takes the Internet brokerages Schwab, E*Trade, and Ameritrade to task for failing to mention the possible impact of Merrill's entry to the Web at a conference last week.

The Woes Continue at PBHG
The Philadelphia Inquirer
Pilgrim Baxter & Associates, which manages the PBHG funds, has been for sale since the fall. For three years, the faithful who have remained invested in the Chesterbrook fund family's flagship fund, PBHG Growth, have suffered through poor returns. There's a messy lawsuit over the exit of successful money manager Jim McCall, who went to Merrill Lynch and nightmare publicity from the the no-contest plea and prison sentence recently of another manager, John S. Force, for vehicular homicide while driving under the influence of alcohol in May 1998. But Gary Pilgrim, who founded the firm with Harold Baxter in 1982, said yesterday his firm's situation is not nearly as bad as it appears.

Funds in the news

The Boston Globe examines Fidelity's proposal to change it management fees at the Destiny funds to a flat fee from a performance based fee. The change would have earned Fidelity an extra $8.6 million for Destiny I last year. Shareholder votes are counted tomorrow.

The Wall Street Journal picks up on PricewaterhouseCoopers' study of ethics at investment management companies first reported on yesterday. It stresses the angle of funds' concerns over managers trading for their own accounts.

SmartMoney recommends four REIT funds: Columbia Real Estate, American Century Real Estate, CGM Realty, and Cohen & Steers Realty Shares.

Diversifying away from pure Net plays into "net enabled" stocks like the Gap, Office Depot, and Cendant, did not help Munder NetNet avoid the recent decline in Net stocks. It is down in-line with other Net stocks, according to TheStreet.com.