Reply #31: Eight Annual Mutual Fund Turkey Awards (for those of us with scraps in our 401-K/IRA)

[KoKo]

Eight Annual Mutual Fund Turkey Awards

Submitted by Jonas Ferris on Fri, 11/28/2008 - 07:07.

It's Not an Honor Just to be Nominated. Not exactly a rare breed even in the best of times, the Fund Turkey multiplies exponentially when the market turns south.

A bear market is a high-powered headlight bar across the top of your fund research pickup truck, shining a spotlight on bull market excess. Tis the season to hunt Fund Turkeys (squawking all the way about investing abroad or in commodities), and thin this breed.

So without further ado, it's high time for our 8th annual Fund Turkey Awards!

The "Audacity of Hope" Award
Winner: Bear Stearns

At the top of the list of suckers for the real estate bubble is was Bear Stearns, the century-old Wall Street investment bank that collapsed well before the other leveraged "Masters of the Universe” suffered similar fates. What started innocuously enough with leveraged mortgage debt hedge funds didn’t end until the entire firm lay in ruins.

But failure's no reason to give up! You have to give Bear props for launching the first actively managed ETF, Bear Stearns Current Yield ETF (YYY). So what did this innovative new fund invest in? Mortgage securities. Naturally.

Bear's final hurrah didn’t last long. In September , the fund's Board of Trustees unanimously approved its liquidation "in the best interests of the Fund and its shareholders.”

The “Oops, I Did It Again” Award
Winner: Van Wagoner Emerging Growth (VWEGX)
Runner-up: Firsthand Technology Value (TVFQX) and other tech funds

Former Fund Turkey winner/loser Garrett Van Wagoner proves that a broken clock can be wrong all the time. Van Wagoner Emerging Growth (VWEGX) is down more than 50% this year – its third 50%+ calendar year drop in the past eight years.

The fund recently got a new subadvisor (Husic) and name (Embarcadero Small Cap Growth). Now the fund can embark on a new Van Wagoner-free era.

Bubble 1.0 wonderfund Firsthand Technology Value (TVFQX) doesn't look much better, having also fallen over 50% this year. The fund plummeted more than 56% in 2002, but a mere 44% drop in 2001 keeps this fund off the three-time-50%-plus-loser list.

The “Value Bubble” Award
Winner: Too many to list

Our current bear market has proven that focusing on fundamentals and valuations – dividends, book value, price-to-earnings ratios, and other Benjamin Graham good stuff – doesn’t work so well when earnings themselves are enclosed in a bubble.

The 2000 market was one of only 50 P/E ratios in which stocks traded on optimistic expectations for future earnings growth. This time around, the P/E ratios were sensible; it was the earnings that were in a bubble.

Many bank, natural resource, energy, real estate, and other old-economy stocks (those that don’t go belly up) won't see their (inflation-adjusted) future earnings return to their recent highs for another decade or so. Unfortunately for many Dodge & Cox, Legg Mason, and T. Rowe Price funds, as well as giant value funds like Vanguard Windsor (VWNDX), falling farther than many growth funds in a down market is indeed a reality. Did we mention Vanguard Capital Value Fund (VCVLX) was down 55% this year?


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