Mutual funds don't go to zero, do they?
The selling point of funds is that they spread your money across a broad portfolio of stocks for a modest cost, giving you the chance to earn the stock market's 10% to 11% annual gains without the risk of betting the farm on just one company's fortunes. But in the midst of the sharpest and most prolonged downturn in fund investors' recent memory, this week's Big Screen has turned up more than a few funds that have redefined investors' perception of how far funds can fall.
We sifted all U.S. stock funds, looking for any that fell more than 85% over the past 12 months. Ordinarily, this would be a fool's errand: Aside from traders' funds, like those from
Rydex,
ProFunds and
Potomac that use derivatives to get 150% of an index's rise or fall, no U.S. stock fund fell more than 50% in any calendar year in the 1990s.
But we found 17 that made our dubious cut. Yes, there were some funds from the trading set, but only four. The rest were actively managed funds with a stock picker at the helm. In each case, the managers of the funds on our list made titanic bets on tech stocks, riding them to stunning highs in 1999 and early 2000. Now they've ridden them down to equally stunning lows.
A Tale of Whoa!
Funds don't go to zero, do they? |
| Diversified Funds |
| Fund |
1-Year Loss |
Value of $10,000 Invested
Jan. 1, 2000*
|
| (RYVYX Quote - Cramer on RYVYX - Stock Picks)Rydex Velocity 100 |
-93.6% |
$1,122 |
| (UOPIX Quote - Cramer on UOPIX - Stock Picks)ProFunds UltraOTC |
-93.6 |
780 |
| (VWPVX Quote - Cramer on VWPVX - Stock Picks)Van Wagoner Post-Venture |
-86.3 |
2,365 |
| (VWEGX Quote - Cramer on VWEGX - Stock Picks)Van Wagoner Emerging Growth |
-85.8 |
2,886 |
| (VWMDX Quote - Cramer on VWMDX - Stock Picks)Van Wagoner Mid-Cap Growth |
-85.6 |
2,644 |
| (MAFOX Quote - Cramer on MAFOX - Stock Picks)Merrill Lynch Focus Twenty |
-85.5 |
2,271 |
| (MOCAX Quote - Cramer on MOCAX - Stock Picks)Mercury Focus Twenty |
-85.4 |
2,246 |
| (VFINX Quote - Cramer on VFINX - Stock Picks)Vanguard 500 Index |
-30 |
7,867 |
| Technology Funds |
| Fund |
1-Year Loss |
Value of $10,000 Invested
Jan. 1, 2000*
|
| (INPIX Quote - Cramer on INPIX - Stock Picks)ProFunds Ultra Internet |
-96.6% |
$539 |
| (BFOCX Quote - Cramer on BFOCX - Stock Picks)Berkshire Focus |
-89.5 |
2,369 |
| (BTECX Quote - Cramer on BTECX - Stock Picks)Berkshire Technology |
-89.4 |
2,280 |
| (PNETX Quote - Cramer on PNETX - Stock Picks)Potomac Internet Plus |
-87.9 |
934 |
| (JAMFX Quote - Cramer on JAMFX - Stock Picks)Jacob Internet |
-86.8 |
821 |
| (VWTKX Quote - Cramer on VWTKX - Stock Picks)Van Wagoner Technology |
-86.4 |
2,427 |
| (ATCHX Quote - Cramer on ATCHX - Stock Picks)Amerindo Technology |
-86 |
1,549 |
| (IINTX Quote - Cramer on IINTX - Stock Picks)Investec internet.com |
-85.4 |
1,781 |
| (DTYAX Quote - Cramer on DTYAX - Stock Picks)Delaware Technology & Innovation |
-85.2 |
2,665 |
| (VHQAX Quote - Cramer on VHQAX - Stock Picks)JP Morgan H&Q Technology |
-85 |
1986 |
| S&P 500 |
-30 |
7,867 |
| Source: Morningstar. Returns through Sept. 24. *Returns through Aug. 31. |
If we lump all these funds into one portfolio, we end up with nearly 90% of our money in tech stocks. The portfolio would've risen 222% in 1999, only to fall 88% over the past 12 months. A $10,000 investment in any of these funds on Jan. 1 last year would've been worth less than $3,000 at the start of this month, according to Chicago fund-tracker Morningstar.
The battered funds on this roster amount to a who's who of ultraaggressive tech investors. On it you'll find PBHG emigre Jim McCall (
(MAFOX Quote - Cramer on MAFOX - Stock Picks)Merrill Lynch Focus Twenty/
(MOCAX Quote - Cramer on MOCAX - Stock Picks)Mercury Focus Twenty), Garrett Van Wagoner (
(VWPVX Quote - Cramer on VWPVX - Stock Picks)Van Wagoner Post-Venture/
(VWEGX Quote - Cramer on VWEGX - Stock Picks)Van Wagoner Emerging Growth/
(VWMDX Quote - Cramer on VWMDX - Stock Picks)Van Wagoner Mid-Cap Growth) and Alberto Vilar (
(ATCHX Quote - Cramer on ATCHX - Stock Picks)Amerindo Technology).
Another familiar name on the list is Ryan Jacob, the young buck who rang up fat gains running the
(WWWFX Quote - Cramer on WWWFX - Stock Picks)Kinetics Internet fund and who started his own
(JAMFX Quote - Cramer on JAMFX - Stock Picks)Jacob Internet fund just as the Net bubble started deflating at the end of 1999. The fund has lost ground in five of its first six quarters and is down 87% over the past 12 months.
Clearly, things are tough all over, not just for these folks. The average U.S. stock fund has lost more than a quarter of its value over the past 12 months, worse than any calendar-year loss in more than 30 years. You'd expect these ultraaggressive funds to fall further, because they're typically more volatile than most funds and their favorite sector -- technology -- has cratered.
But you might still be stunned by these losses, which seem downright stocklike. If you're wondering just what the heck these folks did with their shareholders' money, so did we. We tossed each fund into a pot and then sifted out their cumulative top 10. The results made the funds' losses less mysterious.
Each fave is the crushed stock of a former highflying tech company, including business-to-business software outfit
Ariba (ARBA Quote - Cramer on ARBA - Stock Picks), communications networkers
Ciena (CIEN Quote - Cramer on CIEN - Stock Picks) and
Juniper (JNPR Quote - Cramer on JNPR - Stock Picks), and data-storage titan
EMC (EMC Quote - Cramer on EMC - Stock Picks). On average these stocks are down more than 81%.
Portfolio Poison
Toss these funds holdings into a pot and here are their combined top 10 picks |
| Stock |
Percentage of Portfolio |
1-Year Return |
| Ariba |
2.7% |
-98.8% |
| Ciena |
2.6 |
-91.1 |
| Juniper Networks |
2.5 |
-94.6 |
| BEA Systems |
2.4 |
-85.8 |
| Veritas Software |
2.3 |
-84.5 |
| Brocade Communications |
1.8 |
-83 |
| Interwoven |
1.8 |
-91.8 |
| EMC |
1.8 |
-87.2 |
| i2 Technologies |
1.7 |
-95.4 |
| Source: Morningstar. Returns through Sept. 24. Holdings through most recent portfolio reports. |
It's an instructive exercise to pick over these stocks and the funds that own them. A worst-case scenario like this is precisely why sector funds and growth funds that bet heavily on one or two sectors shouldn't add up to more than 10% or so of your portfolio.
When you hear pundits talking about the concept of "play money," where you toss a modest amount of money into an aggressive fund with a strategy and manager you like, these are the funds they're talking about. These funds are right for very few investors. If you believed in these managers when the Nasdaq
was at 5000, for instance, then maybe you might buy some shares of their funds now that the index is down around 1500. Then or now, the key is to limit the amount of money you give these funds and others of their ilk. Nothing proves that better than their free fall over the past year.
Ian McDonald
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