Which would you rather get from your mutual fund: strong performance, or discounts on ski lift tickets?
Ron Baron's funds aren't currently delivering the former, but he might offer investors the latter. In his funds' Dec. 1 shareholder report, he says he might offer shareholders discounts on lift tickets or other consumer goodies offered by the companies in which his funds invest.
Baron's mid-cap growth funds, the $5.9 billion
Baron Asset, which he manages, and the $439 million, team-managed
Baron Growth, are currently trailing their peers, as the table below shows.
Among the year's portfolio duds: ski-resort manager
, tony auction-house
and resort/gaming concern
Through Monday's close, these stocks are off 15.1%, flat and down 59%, respectively, for the year. Compare that to the
index's 15.8% return for the same period. Cumulatively, these stocks represent 14.3% of Baron Asset and 7.3% of Baron Growth, according to the shareholder report.
Baron, who often takes big positions in small and midsize companies, thinks the stocks will work out down the road. In the meantime, investors -- already treated to a
performance at their annual meeting in October -- might get discounts from these three firms just for being Baron shareholders.
In the report, Baron writes "cool deals," such as discounts on
commissions, lift tickets at a Vail resort or rooms at Sun International hotels, could be on the way.
Fund marketers say the agreement could raise the funds' image by associating them with upscale brands. That might help them stand out since few, if any, funds make similar offers.
But does it cross legal lines to form these agreements with companies the funds own?
Apparently not, since Baron discloses in the report that neither he nor
get any payment as part of the deals.
"Managers' salaries depend on how well they perform. He's not going to compromise performance to maintain an agreement that few investors will probably use," says Pamela Wilson, an attorney with Boston-based law firm
Hale and Dorr
. Her firm does not represent Baron.
Neither the marketers nor Wilson had heard of a fund company making this type of offer. Through a spokesman, Baron declined to comment.
It's probably safe to say these discounts, if they materialize, won't keep investors from dumping the funds if performance doesn't pick up. But if Baron keeps lagging his peers and the offer actually appeases investors, he could be headed for the spin doctor hall of fame.
OpenFund Lives Up to Name
Talk about role reversal.
, launched Aug. 31, broke a lot of old-school mutual fund traditions by giving investors real-time views of its portfolio, its trades and even its managers via a trading room Web-cam on its
Web site. Now the fund's gone a step further -- harvesting a stock pick from its message boards.
executives Don Luskin and H. Davis Nadig manage the aptly named fund and founded its San-Francisco-based adviser
last year. The fund's
aggressive approach to transparency includes message boards where investors discuss stocks and the fund's moves with one another and even the fund's managers.
Message boards are often written off as cauldrons of self-serving froth. But Luskin says he found one of his fund's winners, early stage venture capital firm
Harris & Harris Group
, on the fund's message boards.
"An investor brought it to our attention and we researched it and found a good investment," says Luskin, who'll appear on "TheStreet.com" on
Fox News Channel
He calls the New York-based Harris & Harris a "micro-
" that invests in fledgling start-ups early in their corporate life cycle.
(SQST:Nasdaq) one of Harris & Harris' investments, went public last month.
On Monday, Harris & Harris was 1.8% of the fund, which owned more than 35,000 shares. Luskin's began buying the stock Oct. 14, and his average price is just under $4.30. Monday, shares closed just over $6, leaving the fund up more than 40% on the stock, according to the site.
So far, the fund's strategy of focusing on "new economy" stocks has paid off. The fund is ahead of the
index and even the white-hot
, according to MetaMarkets.
Of course, the fund's open posture could backfire when investors are faced with a losses during a downturn, but Luskin claims to be ready.
"Our goal is to show the good, the bad and the ugly. We think people are smart enough to handle that," he says.
Still, investors should know that the fund they're so familiar with could be riskier than those that are less open about their portfolios. "We're very, very active traders," says Luskin. "The fund is run very much like a hedge fund."
The fund is nondiversified, meaning it can build large positions in few stocks. (On Monday afternoon, the fund had 76 positions, with
its largest at 4.4% of assets.)
Investors haven't piled on board yet. Luskin says the $12 million dollar fund has 175 to 200 accounts.
If you're looking for another fund that'll listen to your stock ideas,
Stockjungle.com launched the
fund, designed to use message-board posters' input, on Nov. 15.
No-Load Ranks Grow Thinner
The load creep continues.
nixed two more funds from its no-load roster and converted them to load funds, or funds that carry sales charges.
In their new incarnation, the $12.4 million
Growth Investor and the $392 million
Growth & Income will be called
Advisor Growth Investor
Advisor Growth & Income
In the last six months,
more and more fund firms have been shedding their no-load status in favor of the broker-sold system, where the investor pays a sales charge and the broker pockets a portion of it. The move by Stein Roe, traditionally a no-load fund family, follows a familiar scenario where the funds close to new no-load investors and open to broker-advised investors.
Stein Roe changed its
fund into the
Advisor Growth Stock
fund the same way in 1997, according to a Stein Roe spokeswoman.
The new funds' class A shares carry a maximum sales load of 5.75%; only current no-load shareholders (S class) can continue to buy no-load shares.
A Stein Roe spokeswoman says the firm is still committed to the no-load channel and plans to introduce new funds to both the direct (no-load) and broker-sold channels next year. Excluding funds closed to new investors, one-quarter of Stein Roe's funds are sold through brokers.
If more and more no-load companies show this kind of commitment to do-it-yourselfers, the no-load revolution might fizzle.