Smarter Money: What <I>Really</I> Happened at Vanguard's U.S. Growth Fund?

Cramer wants more scrutiny of the decision to switch managers at this underperforming fund.
By Jim Cramer ,

Somebody finally lost his job because of performance. Vanguard fired Lincoln Capital Management as managers of the (VWUSX) - Get Report Vanguard U.S. Growth fund and gave the fund to an Alliance Capital Management team. But like everything else in this crazy world of mutual funds, there is very little explanation and lots of euphemisms about what really happened.

Frankly, I can't believe how much of a free ride the mutual fund industry gets in the conventional press; this shake-up at a $12 billion fund is pretty typical.

The Wall Street Journal

, for example, actually quotes the fired manager, Lincoln Capital, in a statement saying that the fund "would be better served through a more conservative investment approach." Maybe the fund would be better served with a manager who didn't have a three-year return of negative 6.56% and a one-year decline of 47%. Maybe it would be better served with a manager who is not down 25% year-to-date!

But nobody's writing that story. I find the lack of any sort of scrutiny about this change shocking, when you consider that the

Journal

devoted a full page-one story to the "problems" at a hedge fund run by Dan Benton, which had a couple of bad months at the start of the year. Of course, the fact that Dan is now shooting the lights out this year is not covered. You won't read that. Nor will you read anything critical about the folks who blew it for Vanguard. It is a bizarre double standard, especially when you consider that Benton's fund is just for the rich, whereas Vanguard's fund cuts a wide swath through all economic levels and affects many more people.

Funds like it this way. They don't like to see themselves in print acknowledging that someone has done poorly. They like to pull it off subtly, without anyone noticing. And they never come out with a statement about how management got shaken up because someone somewhere in the headquarters office decided that the losses were too great.

I know this change took place officially on June 22, but when I look at the U.S. Growth fund's holdings as of May 31, 2001, I don't see anything high-risk that would be "better served with a more conservative investment approach." The fund's largest holdings were

General Electric

,

Pfizer

,

Microsoft

,

Home Depot

,

Tyco

,

AOL Time Warner

,

Coca-Cola

,

Cisco

,

American Home Products

,

Schering-Plough

. Hmmm, doesn't seem that "out-there" to me.

Perhaps the change had been made earlier than announced, given that these are simply traditional large-cap growth stocks? Perhaps it wasn't more aggressive investing that Vanguard wanted to change but

bad

investing? Whatever. I am thrilled that Vanguard finally decided that its shareholders needed better. But let's cool it with the euphemisms. And conventional press, let's not rely on press releases and obviously biased sources for information about the changes at this fund. As

Bob Dylan

says, "You don't need a weather man to know which way the wind blows."

James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. At the time of publication, Cramer was long General Electric, Pfizer, AOL Time Warner and Cisco. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to

jjcletters@thestreet.com.

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