When John Horseman stepped down from the

(GAMNX)

GAM International and

(GAGLX)

GAM Global funds last summer, investors said goodbye to a portfolio manager who wasn't afraid to make aggressive interest-rate or short-selling plays.

Unfortunately, they didn't say goodbye to several years of underperformance.

Horseman's successor, Jean-Philippe Cremers, doesn't appear to be the investing renegade Horseman was. He has shied away from taking on bonds, and he's not shorting stocks. But neither is he producing the returns that Horseman did during his good years.

Though Cremers has toned down the funds' wild volatility, under his guidance GAM International has a been down 20.8% for the last 12 months vs. a 21.5% average return for its category, and GAM Global is down 16.2%, compared with a 25.4% average return for its category. Neither fund has had a good year since 1997, though at one time each sported impressive records.

The $816 million International fund invests exclusively overseas. The younger and smaller, $60 million Global fund uses a similar top-down strategy (picking first countries, then stocks) but can invest in the U.S. as well, which has tempered its volatility.

Lately, everything's been going against both funds. Cremers, an analyst and assistant manager on the fund for seven years before taking control, moved into Japan last fall, producing a windfall 30% fourth-quarter return. At one point, the fund maintained a 23% weighting in Japan. But now, with Japan's

Topix

, an index of blue-chip and technology stocks, off 14% year to date, the International fund's current 13% weighting in the country is a drag.

Other blunders abound. After avoiding technology under Horseman, the funds got into technology and telecommunications, but only late last year. Cremers loaded up on the sectors throughout the early part of 2000, only to see those stocks take a hit during the

Nasdaq

-inspired spring slump. In June and July, Cremers dumped those stocks, says David Anderson, a managing director with GAM's parent,

Global Asset Management

, in New York.

Instead, the Belgian-born manager picked up stock of companies in the financial services, consumer goods, oil and pharmaceutical sectors. He also lowered the average price-to-earnings ratio of the stocks in the portfolio from the mid-40s to 38. And he started focusing on large-caps. So far those moves have at least stanched the bleeding.

But Cremers' mistakes were enough to land GAM International on

Fabian Investment Resource's

quarterly "Lemon List" of el stinko funds.

"When you look at the distribution of this fund by a country or sector basis, it's just in the wrong countries," says Ed Foster, chief investment officer of the Huntington Beach, Calif., financial planning firm. Of Cremer's top country allocations in the International fund (France, the Netherlands and Japan), only French stocks are having a positive year, and then only marginally.

To end up on the lemon list, a fund has to have a sub-par one-, three- and five-year performance record. Foster adds: "Don't be afraid to sell this fund."

Long-term holders will remember more heady days in the mid-1990s, when Horseman's bold bets paid off often enough to make the fund's volatility bearable.

In 1993 Horseman loaded up on Eurobonds, earning the International fund an 80% return and a first-place finish in its category. Again in 1997, Horseman made a bet on falling interest rates, tucking European financials into the International fund and U.S. financials into his Global fund. Again International landed in the top slot. That year Horseman was a runner-up in

Morningstar's

manager-of-the-year category, losing out to Helen Young Hayes of

Janus

.

"The good years were so good and there were enough of them, that if you were a long-term shareholder you did well," says William Rocco, an analyst with Morningstar who follows the two funds.

But, inevitably, the bad bets more than offset the good ones. In 1999 before he departed, he trimmed the fund's Japan position to a miniscule 3% while Japan was on a roll. He also shied away from technology. Then he took a big gamble on German bonds, moves that hurt the fund dearly.

At its height, International's assets stood at $2.6 billion. Now it has less than one-third that total, a result of both redemptions and depreciation.

Though Cremers may yet find the formula for turning around the funds' fortunes, their volatility should give investors pause.

"The more volatile the fund is, it extends how long you need to own it to make any money," says Rocco. "It's too volatile to be a core holding even if it does work over the years."