Departure of Top Exec Is Just the Latest Setback for StockJungle

StockJungle.com, an online mutual fund company that has struggled to attract assets, is losing its chief investment officer.

The pending departure of Michael Petrino, who plans to take a less-active advisory role, is the latest in a series of setbacks for the Culver City, Calif.-based firm. It was forced to liquidate its no-fee S&P 500 index fund on April 7 when it failed to attract $1 million in assets. And earlier this month, the firm said it would ask shareholders to approve a 45% hike in the expenses of its remaining three funds.

On top of all this, the shop has managed to gather just $5.4 million in total assets, while the average U.S. stock fund has more than $400 million in assets, according to Morningstar.

Taken together, these events are enough to make the funds' few shareholders wary. Even so, some observers say there's no reason to hit the panic button yet.

"They have it more together than most small fund companies," says Jonas Max Ferris, co-founder of fellow dot-com start-up MaxFunds.com, a Web site that tracks small mutual funds.

And even in a worst-case scenario, Ferris says, shareholders would merely be cashed out of the funds, not left penniless.

But the picture is not so bleak as to be raising the specter of liquidation. StockJungle.com's flagship Community Intelligence fund has turned in solid performance -- with a groundbreaking investment strategy: allowing investors to help pick stocks -- or, as one observer calls it, mob management.

The company has attracted a community of some 12,000 aspiring analysts on its site, and each day pays $50 to the five posters whose portfolios have the top performance over the past three months. The best picks in those portfolios can find their way into the $4.1 million Community Intelligence fund.

Much to pros' chagrin, the fund is up 28.4% since Jan. 1, beating virtually every other large-cap growth fund out there. These results are at least partially due to a fat cash position that reached 50% on March 31.

In April, the firm filed paperwork with regulators announcing that its $760,000 Pure Play Internet fund and the $550,000 Market Leaders Growth fund would start trolling the peanut gallery for stock ideas too. The funds are down 30.8% and 3.9%, respectively, this year, according to Morningstar.

The spotty performances of these funds, coupled with the firm's inability to gain assets, paints a picture of another dot-com startup about to burn through its cash and fade away. But the company says that's far from being the case.

"Honestly it would be way off base to say Petrino's leaving, they're raising their fees and yadda, yadda, yadda, they're next," says Jeff Lloyd, a StockJungle.com spokesman. He won't comment on the company's financial status, but says a recent round of financing from private investors has left the firm with plenty of cash to stay afloat.

A person with knowledge of the firm's recent financing declined to provide specifics of the private financing, but says StockJungle.com is not going to run out of money anytime soon.

StockJungle.com's Lloyd says the firm's modest assets are the result of a dearth of marketing. Currently StockJungle.com's funds aren't sold in any fund supermarkets, like Charles Schwab's OneSource, and the only way to buy shares is via the firm's Web site.

"We've made it so difficult for investors to find us that I think the fact that we've got $5 million speaks volumes," he says.

Still, Petrino's upcoming departure as chief investment officer should make investors watchful for changes in the fund's performance. He is listed as a co-manager on all three of the firm's funds, even though he downplayed his role in an interview on Tuesday.

"We should've made more clear what my role was," says Petrino, who says he's nearing the end of a one-year employment contract and is looking for another startup opportunity closer to his Connecticut home. Lloyd wouldn't confirm when Petrino would step down, but Petrino's comments implied the contract's expiration wasn't in the distant future.

That leaves Akber Zaidi and Gordon Gustafson in charge of the funds. Before joining StockJungle.com last March, Gustafson worked as a production manager on movies, and Zaidi worked as a portfolio manager on a hedge fund, according to the fund's prospectus.

Despite the funds' less-than-boffo recent news, competitors are lining up. Mutualminds.com is preparing to roll out a New Economy fund that also will cull its stock picks from amateur analysts. iExchange.com, a Web site that tracks amateur picks, is said to be considering a similar fund.

Joe Bousquin contributed to this report.