Funds Notebook: Fund Companies' Favorite Stocks Lately Have Been Their Own

Also, AIM closes a small-cap fund and Baron proposes an Internet fund.
Author:
Publish date:

Apparently, fund companies just can't get enough of themselves.

On Wednesday,

T. Rowe Price

(TROW) - Get Report

, manager of $96.4 billion in mutual fund assets, expanded its 1995 share buyback program, clearing the company to buy up to 5.5 million of its own shares.

The buyback announcement comes on the heels of similar announcements by two other money managers,

Neuberger Berman

(NEU) - Get Report

and

Gabelli Asset Management

(GBL) - Get Report

.

Pending financial services

deregulation has boosted stocks of banks and insurers by making them possible merger candidates. But many analysts and observers think asset managers will be wallflowers if a spate of mergers follows, so their stock prices haven't followed suit.

Shares of

Federated Investors

(FII) - Get Report

, which manages $118.8 billion in mutual fund and money market fund assets, were first offered at 19 in May 1998. On Tuesday, the stock closed at 17 15/16.

Waddell & Reed

(WDR) - Get Report

is up just 7.9% since its March 1998 IPO.

In addition to the 4 million-share-buyback program announced Wednesday, T.Rowe still has the option to buy 1.5 million shares remaining from a 6.7 million-share-buyback effort announced in 1995. The no-load fund manager bought 2 million of its own shares last quarter alone. There are just over 129 million shares outstanding, trading at 35 as of Wednesday's close.

"This will give us the chance to strategically pickup shares in a down market," says company spokeswoman Rowena Itchon.

The stock has been chugging north recently on rumors that an unnamed European financial services behemoth may be interested in acquiring the firm, which has solid records in core stock and bond fund categories. Since reporting third-quarter earnings that beat analysts' estimates on Oct. 21, the stock has risen 20.8% through the close on Tuesday.

T. Rowe officials have been denying the acquisition rumor and Itchon says the buyback is not related to the rumors in any way.

"T. Rowe doesn't see an asset manager they want to buy right now, so they probably figure they should just put the money into their own stock," says Patricia Ouimet, asset manager analyst at

John Hancock Funds

in Boston.

T. Rowe isn't the only fund manager interested in gobbling up its own shares. But times at the others aren't quite as good.

On Monday, Neuberger Berman announced a $50 million buyback program to prop up its stock after netting $90 million in an Oct. 13 IPO. Since then, the stock has sunk below its 32 offering price and stayed there.

Gabelli, manager of just over $20 billion, announced a $3 million buyback program a little more than a month after its Feb. 2 IPO. Gabelli did not return calls asking whether or not any shares were purchased under the program. If so, it hasn't done much good. The stock closed at 14 3/4 on Wednesday, well below its 17 1/2 offering price.

"Neuberger and Gabelli's decisions were a little strange. I didn't understand why they're not putting money back into their businesses," Ouimet says.

AIM Closes Small-Cap Fund

AIM is closing the door to a small-cap fund and waving investors into a mid-cap fund run by the same team.

On Wednesday AIM said its solid-performing

(ASCOX)

Small-Cap Opportunities fund would close to new investors as of 4 p.m. ET today because it has hit its $500 million asset target just 16 months after it was launched.

To scoop up the overflow of investors at its door, AIM is pitching the

Mid-Cap Opportunities

fund, which has performed well, but lacks a one-year record. Both funds are managed by the same team led by Charles Scavone.

"The odds of us reopening Small-Cap Opportunities are next to zero, but the mid-cap fund has actually performed better year-to-date," says Ivy McLemore, an AIM spokesman.

The move illustrates the conundrum of small-cap funds, where it often seems nothing fails like success. When a fund performs well, it's often swamped with assets, making the fund less nimble and causing performance to drag. To combat the problem, fund companies typically close the small-cap fund at a predetermined asset level, as with Small-Cap Opportunities, or let the cash-rich fund invest in larger companies, as with the $14.3 billion

(CSTGX)

AIM Constellation, which just became an all-cap fund.

McLemore says the Mid-Cap fund has no asset target for closure since a portfolio of mid-cap stocks can still be nimble with billions in assets. But this might not be the case with this mid-cap fund. Like Small-Cap Opportunities, its mid-cap counterpart can use up to 25% of its assets to short stocks -- that is, borrow shares of a stock in hopes of profiting when its price drops. To use this provision effectively, asset levels have to be manageable.

Giving such short notice for a fund's closure has spiked investor demand in the past.

(AAGFX)

AIM Aggressive Growth fund has opened and closed three times according to McLemore. On July 17 the fund opened, then closed the next day. In those two days investors stuffed $1 billion through the door.

"It practically melted the phone lines over here," McLemore says.

Time will tell if short notice will boost this small-cap fund's assets even further. Just in case investors don't care for the Mid-Cap Opportunities fund, AIM launched a new

Mid-Cap Growth

fund on Monday, also managed by Charles Scavone's management team.

Yet Another Net Fund

Just what the world needs, another Internet fund. With more than a dozen Net funds, and many more in registration, the only thing new about them might be their interesting names:

(WWIFX)

WWW Internet,

Goldman Sachs Internet Tollkeeper

,

(MNNAX) - Get Report

Munder NetNet and, soon, the

Baron iOpportunity

fund.

Last month,

Baron Asset Management

, led by high-profile manager Ron Baron, registered its new Net fund to commence operations next February. A perusal of the registration filing shows that Baron is pitching the fund as a broad, value-oriented Net offering that will invest in pure-play Net names as well as firms positioned to benefit from the Net.

This vague wording means the fund could own

Wal-Mart

(WMT) - Get Report

, but not

Yahoo!

(YHOO)

. Through a spokesman, Baron chief operating officer Morty Shaja declined to comment.

A manager hasn't yet been named, and it might be hard to find one who can track down what the filing says the fund is after: Net companies that are trading at reasonable prices. Baron himself might fit the manager profile since he's one of a legion of managers touting the hackneyed mantra of "growth at a reasonable price."

"I didn't think there were any undervalued Net stocks," says Jim Folwell, a consultant at Boston fund-researcher

Cerulli Associates

. But he adds that redundancy in the fund world isn't limited to the Net category, "It's not so bad to add another one. I'm not sure how much the world needs another core growth fund either, but they keep coming out, too."

As originally published, this story required a clarification. Please see

Corrections and Clarifications.