Where are they now?
No, we're not chasing down
Gary Coleman. We're talking about last year's
Century Club -- funds that posted triple-digit returns.
What a difference a year makes. Many of last year's highfliers, especially those that rose the highest thanks to white-hot stocks, are now proving the old saw that buying last year's hot fund often sets you up for a fall. Since Jan. 1, the average Century Clubber is underwater and since the
Nasdaq Composite Index
peaked on March 10, the average member is down a whopping 24.8%.
Before 1999, the Club was exclusive. From 1990 to 1998, less than 10 funds in total posted a 100% return in a given year. But 1999 numbers look as inflated as this early baseball season's home run totals. Last year, 185 stock funds qualified, posting a stunning 146% average return.
Why so many? First off, the Nasdaq's 86% return -- the greatest one-year performance ever by a major index -- didn't hurt. But rising competition in the fund world has also led to more sector funds and concentrated funds -- most funds that made the cut focus on either a sector or a country. Aggressive strategies like these take big bets on hot stocks, giving the funds more volatility on both the upside and the downside.
While that type of upside potential make them eye-catching, chasing last year's model can prove hazardous to your wealth.
"Anyone who buys a fund off a winners list probably deserves to be down 20%. You're inevitably picking a fund that focuses on stocks that are overheated," says
Still, it will take more than that to wipe out those King Kong-size gains. The Club still averages a 94.2% gain over the past 12 months. And some funds are even adding to last year's profits. We're going to look at the list in three slices, starting at the top with last year's Top 10.
Let's face it, this year hasn't been pretty for most of these funds that had the furthest to fall.
You can pretty much divide them into two piles: tech and Asia. Even though some of the domestic funds on this list don't have "technology" in their names, about half or more of their assets are invested in the sector.
As you can see from their year-to-date performance, not all these tech funds are alike. More speculative tech and Net stocks have taken a beating this year, so it's not too surprising that two Net funds,
Monument Internet and
Amerindo Technology, have fallen the most in this group. Common picks between the two include once-hot B2B stocks like
, according to the two funds' most recent public portfolios. Those two stocks are down 13.7% and 42.7%, respectively, since Jan. 1.
Perhaps the most striking characteristic of the tech funds on the list is manager turnover.
Nicholas-Applegate Global Technology, last year's top fund, and Monument Internet, last year's top Net fund, have both lost part or all of their management teams this year as the
market for tech fund managers became hotter than the stocks they buy.
As for the Asia funds, it looks like the two
funds were hurt by big tech and small-cap bets that paid off last year but obviously haven't worked out as well since. The average Japan fund is down 11.5% since Jan. 1, but this pair has fallen twice as much, according to
"There's been a shift from small-caps to large-caps in Japan as investors are looking for a better risk/reward proposition. There's been a shift from growth to value sectors like basic materials, chemical stocks and property stocks," says Eric Ritter, portfolio manger of
Driehaus Asia Pacific Growth.
Ritter's fund sidestepped some of the pain by reducing his Japan weighting and investing that money in India, Korea and Malaysia. This was hardly a cure-all though, and now he's underwater too.
Who's performed best lately? Here are the Club's top 10 since Jan. 1.
Most of these funds focus on niches that have provided shelter.
Healthcare has held up in 2000, buoyed in part by a revival in pharmaceuticals as well as impressive leadership by biotechs early in the year. The
Nasdaq Biotech Index
is up 10.6% since Jan. 1. Of course, that masks some more recent pain.
Since the Nasdaq peak on March 10, the Biotech index is down nearly 31%. Clearly,
Dresdner RCM Biotech has made better picks than most, like top-holding
Protein Design Labs
. These are up 38.2%, 53.8%, and 105%, respectively, since Jan. 1.
Semiconductor stocks such as
, both up more than 45% this year, have buoyed
Fidelity Select Electronics,
Rydex Electronics and
Red Oak Technology.
Firsthand Funds' Kevin Landis has two funds on the list, which is at least partly due to their semiconductor bias with holdings such as
, in addition to Intel and
Kopp Emerging Growth, which just
reopened to new investors, has benefited from both semiconductor and healthcare picks.
What about Clubbers whose picks haven't aged so well? Here are the 10 that have sagged the most since Jan. 1.
Not surprisingly, many of last year's biggest winners made the losers list as the risk part of the risk/reward proposition has reared its ugly head.
Most of these funds probably had a hard time dodging the carnage due to their narrow focus, like those zeroing in on the Net or a single country. But what about the diversified small- and mid-cap growth funds from Janus and Putnam?
Well, they sunk more than half their assets into a big helping of more speculative tech stocks. The Janus funds are essentially clones, but all three have several holdings in common, according to their most public portfolios. Both fund families invested some 70% of their assets in pricey tech and telecom stocks. That bet gave them a real boost last year -- both returned more than 80% in 1999's fourth quarter alone. But now some of those stocks are in free-fall. Both funds own hard-hit stocks such as
, according to their most recent public portfolios. Those two stocks are down 38.6% and 20.2%, respectively, since Jan. 1.
While these funds have fallen the furthest, it's also important to remember that
of the Club is underwater. Indeed, the average stock fund is down about 1% so far this year. Only time will tell which few of 1999's Century Club members will go on to become household names, leaving the others to be one-hit wonders (Vanilla Ice, anyone?) of the fund world.
Until then, they're an entertainment if you don't own them. If you do own one or more, their performance this year is an emphatic -- and probably painful -- reminder of why aggressive funds should make up only a small part of your portfolio.more, their performance this year is an emphatic -- and probably painful -- reminder of why aggressive funds should make up only a small part of your portfolio.
Ian McDonald owns shares of Putnam OTC & Emerging Growth.