David Brady should know a thing or two about the dynamics of change.
He started managing
Stein Roe Young Investor -- the popular fund aimed at educating children about investing that comes complete with coloring books -- after the last big shakeup at Stein Roe. That was in 1995, when the firm cut 20 jobs, including those of CFO James Atkinson and portfolio managers Lawson Whitesides and James Grabovac.
Last week, Stein Roe was at it
again, rearranging its funds and saying goodbye to two more portfolio managers, Gloria Santella and Gerry Sandel.
Stein Roe Special fund will be renamed
and pursue a more growth-oriented mid-cap strategy. Santella's
Stein Roe Capital Opportunities fund will be merged into Brady's new
fund, which he co-manages with Erik Gustafson.
With Santella and Sandel out of the picture, Brady is one of Stein Roe's few remaining stars. Given the fate of the firm's high-profile managers in the past, does Brady fear a similar destiny awaits him?
"Absolutely," he says. "That's what keeps you motivated, working hard. You know, this is a very performance-oriented business. Money comes into the funds that are performing well."
In 1999, Young Investor has posted a 13.5% return, ahead of the
11.4% run. And Brady's third fund,
Large Company Focus, which trailed the S&P after its inception in June 1998, is up 17.8% in 1999.
Brady's not gloating about the infusion of cash from Santella's fallen fund. He voiced respect for Santella and her work, though her small- and mid-cap companies have lagged in recent years.
"Gloria was always very conscious of her shareholders, and she really gave a lot of herself to that fund," Brady said. "Erik and I ended up with $600 million more to manage, and people call up and say congratulations. This is not anything that deserves congratulations."
He says he didn't relish the weeks before the shakeup, when the writing on the wall was becoming increasingly clear.
"Going into it is when it's tough. Some people know, and others don't know. It's not a happy experience," Brady said during an interview over coffee and Diet Coke at a deli in New York's financial district. "It's difficult in that situation. As at any place, people talk, there are rumors, and some people are right, others are wrong. It's disruptive."
It was a story of assets. Stein Roe's total fund holdings have slipped to $6.1 billion from $6.5 billion at the end of 1997, according to
Financial Research Corp.
in Boston. Two of the biggest losers were Santella's Capital Opportunities fund, which shrank from $1.4 billion at the end of 1996 to $590 million this March, and Sandel's Special fund, which shrank from $1.3 billion in 1997 to $685 million in March.
Meanwhile, the Young Investor fund has been a money-attracting standout. By the end of March, it had more than $900 million in assets, according to Financial Research, up from just $12 million in 1994. That's although the fund underperformed the S&P 500 in both 1997 and 1998.
Young Investor has been so popular, in fact, that Stein Roe cloned it in April with the launch of Growth Investor. The only difference is that Growth Investor will be marketed to adults, and comes sans coloring books.
With his job still in place after Stein Roe's shakeup, Brady says now is a time to move on and make some money as the market broadens to include both growth and value, small-cap and mid-cap stocks.
He says he plans to hold onto his
position in Young Investor, even though many other portfolio managers -- including
Legg Mason Value's Bill Miller -- have been selling the stock.
"It's a great name for the Young Investors fund," Brady said. "All these kids use it."
And he's trimming his Large Company Focus fund holding in
, which he held during the dog days of last summer, even before markets shifted into cyclicals this spring. He says the ride up the fund took on the stock made up for the anguish he felt last summer.
"I felt this is a great company ... and I knew it was just a matter of things bottoming out. But it was a painful hold, believe me. I took a lot of crap for it," Brady said. "But it ended up really stabilizing the returns."
Which is a good thing for Brady and his portfolio. After all, after the tumult at his company, stability is something Stein Roe could use. Stability's also something Brady will have to deliver now. At least if he doesn't want to find out how restructuring feels again -- from the outside.