Bad Bets Turn Safeco Growth From Sizzler to Money-Loser

So what happened to (SAFGX Quote)Safeco Growth?

A year and a half ago, investors couldn't throw their money at the sizzling small-blend fund fast enough. It quintupled in size in just a few months after its 50% return in 1997 blew past the market to the top of the charts.

Lately, though, shareholders are even more impatient to yank their dollars out. And if last year's measly 4% gain wasn't bad enough, this year Safeco Growth is actually losing money, down 12.4 % through the end of August. Once one of the best performers in its category, the fund is now among the worst. And as it sank, it shrank -- from $1.7 billion in assets to about $900 million -- steadily bleeding about $1 million in redemptions a day.

Same manager for the past decade; no change in the growth-at-a-reasonable-price strategy. Yeah, what happened?

Simple, says Tom Maguire, who doesn't sugarcoat his fund's recent performance. Taking big bets is a gamble, and the ones he has made in his concentrated portfolio just haven't been paying off. "When they work, you stand out really well. When they don't work, you stand out, too, but like a sore thumb."

Some of the sorer ones: Family Golf Centers (FGCI Quote), down more than 90% so far this year. Maguire admits he overestimated management and its plan for renovating underperforming golf ranges. "They kinda screwed up really badly."

Another bad call? (By the way, in my book you gotta give at least some points to a manager who freely owns up to his mistakes -- rare in this business.) Conseco (CNC Quote), his second-biggest holding, with a year-to-date loss of 21%. Here, Maguire says, he misjudged the market's response. "It hasn't done well. Earnings have come through, they hit estimates, have done everything they said they were going to do. But the stock market doesn't care."

So should he do as so many managers have done when a longtime method keeps disappointing -- that is, abandon his approach to start chasing the narrow leaders in this market? No way, says Maguire.

"It's very difficult for me to change. Because that would mean selling things that are not expensive with good outlooks and buying things that are expensive but not attractive," he says. "My mother used to say if everybody else was jumping off a bridge, would you?"

Shareholders may think that's exactly what they have done. A favorite topic on message boards is whether to dump Safeco at a big loss. Perhaps this is cold comfort, but Safeco Growth's manager is suffering right along with his investors. At the beginning of the year, when his company's 401(k) rules allowed employees to invest in it, he switched his entire account into his fund.

"Yeah, I'm way under water, but I don't worry about it. I just feel safer in this fund's stocks," he says.

Of course, safe is a relative term. This fund is nothing if not volatile, with big swings to the upside followed by sudden shifts to the down.

Safeco Growth's Up-and-Down Ride
Year	Total return	% rank in category
1992	-3.1%	96%
1993	22.2	19
1994	-1.6	59
1995	26.1	48
1996	22.9	31
1997	50	4
1998	4.4	17
1999	-12.4*	97
*Through Aug. 31. Source: Morningstar.

But Maguire is confident he'll come back. "I have had bad years and months before, and I always seem to snap back."

True enough, and the fund's long-term record remains strong.

But I have to ask: Is this the time to hike fees? Believe it or not, several Safeco funds, Safeco Growth included, raised their prices this year. Still, the expense ratio is relatively low, at 0.77%, nearly half that of the average diversified U.S. equity fund.

And if the performance numbers change anytime soon, Maguire hints he may well be willing to change a long-held stance on fund size. When the fund was growing so quickly, Safeco didn't close it, something that might have helped returns.

Not a problem now, of course, but Maguire isn't worried, even if he won't say the worst is over. "Hey, I've had bad periods before, and that's when I always like to quote Peter Lynch: 'It's always darkest before pitch black.'"

When More Is More

Watching a money manager's every move may not be quite the same as studying a co-ed's evening activities. But now fund fanatics have the equivalent of those Web sites that follow the play-by-plays in college dorm rooms.

As TSC reported Tuesday, the newly launched OpenFund, is offering visitors to its Web site at www.metamarkets.com for a view of its holdings that is updated in real time. So you'll know if the fund is getting into or out of a position, changing its cash allocation or shorting a stock. Plus, OpenFund offers much more behind-the-scenes data than most fund firms provide, such as the purchase price of each holding and daily commentary from traders.

Sound like a gimmick for a small, $4.3 million fund? Well, of course, it is, in part. But hey, this is still a good thing for the industry.

Fund firms are currently only required by the Securities and Exchange Commission to disclose holdings twice a year. Clearly not good enough for us do-it-yourselfers, especially when we want to keep an eye on managers who like to trade. (Ken Heebner, known on the Street as the Mad Bomber for his lightning-quick trading calls, waits until almost the last possible minute to send out the portfolio list for his CGM funds. This year, second-quarter information was only available almost two full months after the end of the period.)

Of course, not all funds could do this kind of reporting. I mean, (FMAGX Quote)Fidelity Magellan, which moves markets when it shifts positions even slightly, couldn't all of a sudden start posting its portfolio changes at anything approaching real time. And I definitely don't think just because you can watch rapid changes in a fund, you should. Keeping track on a minute-by-minute basis isn't good for either your sanity or your bottom line.

But I applaud the intent. It's better to have more information available than less. And with most fund firms, that information might as well have been sent by pony express, much less snail mail.