For growth-fund managers, 1999 was a dreamy year, but for many it's now just a pleasant blip in an ongoing nightmare.
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Remember 1999? Shares of
rose more than, oh, 2,600%. The
Nicholas-Applegate Global Technology fund gained more than 490%, and the
rose a mere 86%. As you might notice, all are a tinge higher than stocks' 11% average annual gain over time.
That year's tech mania was a once-in-a-lifetime boon for growth-fund managers, many of whom jumped on the mercurial sector's bandwagon with both feet. To illustrate the perils of confusing one sizzling year with acumen, this week's Big Screen has dug up one-hit wonders: a slew of growth funds that sparkled in 1999 but have otherwise faded.
To find these funds we used data from Chicago research house Morningstar to single out big-, mid- and small-cap growth funds that topped their average peer in 1999. Then we fished out those that trailed their average competitor in 1997, 1998, 2000 and last year, and removed funds that didn't have the same manager over the past five years. That left us with 10 funds among the three categories. Let's see what we found, starting with the big-cap growth bin.
It's fitting to see one of financial adviser Bob Markman's funds of funds here. You might recall that Markman is the fellow who thinks investors should bet the farm on big-cap growth stocks, rather than spread their money among a broad blend of funds. His no-load
Markman Aggressive Allocation fund, mainly containing aggressive sector funds such as the
Van Wagoner Post-Venture fund and
Firsthand Technology Innovators fund, rang up a 51% gain in 1999. Over the past five years, however, it's averaging a 2.3% annualized loss compared with a 5.5% gain for its average peer.
It's probably no surprise to see the broker-sold
Putnam New Opportunities fund on this list either. We've
highlighted the fund's steady string of bumbling since a strong start in the early 1990s as a small-cap growth fund. Lead manager Dan Miller has called the shots since the fund's launch in 1990, but the fund's focus and his team members have shifted over the years, with disappointing results. The fund has trailed its average peer in five of the past six years and now trails the S&P 500 over the past one, three, five and 10 years, according to Morningstar.
It might be a bit surprising to see the broker-sold
MFS Emerging Growth fund on the list given the firm's usually steady, price-conscious approach. Like the Putnam New Opportunities fund, which I own dating back to a stint working there in the mid-1990s, the MFS portfolio grew from an impressive small- and mid-cap fund into an awkward, bumbling big-cap portfolio. Manager John Ballen, who's been at the helm since the fund's 1986 launch, is the graybeard on the fund's management team. The fund gained 49% in 1999, but has trailed its average competitor in five of the past six years.
It's not a shock to see the mid-cap growth
PBHG Growth and
Van Wagoner Emerging Growth funds on our list. Both funds are known for a tech-heavy style that favors the highest flying and most expensive shares on the market. The PBHG fund, run by Gary Pilgrim, and the Van Wagoner fund, run by Garrett Van Wagoner and Raiford Garrabrandt, rang up gains of 92% and 291%, respectively, in 1999. Both have wilted otherwise over the past five years. The PBHG fund is averaging a 2.2% annualized loss over the past five years, compared with a 6.3% gain for its average peer.
The Van Wagoner fund, which has averaged a 73% tech-stock position over the past three years, has lost about 1% a year over the past five years.
Putnam, a firm whose funds have
sagged in unison over the past five years, narrowly missed having two funds on the list. Its battered
OTC & Emerging Growth fund, which I also own in my old Putnam 401(k) account, narrowly missed the cut thanks to lead manager Steve Kirson's
firing last month. The fund, which has trailed its average peer in six of the past seven years, averages a breathtaking 7.6% annual loss over the past five years thanks to big bets on speculative, cratering stocks.
Given that small-cap stocks had a nice run over the past year, you might figure few would make this list, though four did. Maybe the ugliest of this quartet is the broker-sold
BB&T Small Company Growth fund, run by William Wykle since its 1994 launch. He had more than half the fund's money in tech stocks in 1999, leading the fund to a 72% gain. Otherwise, the fund has stumbled. It trails the S&P 500 and at least 90% of its peers over the past one, three and five years, according to Morningstar.
Whenever you see a fund rocket to the top of the charts with the wind at its back, remember these one-hit wonders.
Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
firstname.lastname@example.org, but he cannot give specific financial advice.