Hike up the numbers or hit the road!
That's the message from readers responding to Wednesday's question: Why did you sell your last mutual fund?
"Because the fund -- Fidelity
Select Medical Delivery -- is a dog," writes reader
. "I should have sold sooner," she says.
Scudder Growth & Income, some
funds and several of the funds in the
group, according to other readers.
And it's not just performance against the broader market that made these readers pull the plug. Most were careful to judge their fund's performance against its peers.
Sound Shore after two years because it just did not deliver results," writes
. "I have other mid-cap funds (like
Weitz Value) which did not seem to be similarly afflicted, and I added the proceeds there."
"I usually have two or three funds in a sector or a class and eliminate the one that does the worst after six months or one year," writes
It took a combination of poor performance, high expenses and other factors before one reader dumped the
Kaufmann fund. "With Kaufmann, the small-cap concerns were one thing," writes
. "What really got me to thinking about my investment were the fund's high expenses, the
debacle and the attempt by the managers to make a killing selling their fund company at a big profit
last summer while the fund wasn't doing well," he says. "I was also getting tired of seeing all the advertising about the fund track record."
Still other readers wrote to say they were just plain fed up with funds and sold everything. "We liquidated all the mutual funds we owned that were not in tax-deferred retirement savings accounts (and some that were) in 1996," writes
. "We now buy and hold stocks directly or through discount brokers."
"Funds do not give shareholders timely information on the holdings, trades and taxable distributions," Fox says. "I guess we didn't want to play on
playground," she adds. "We'd rather manage our own money."
Surprisingly, not a single reader wrote to say he or she sold a fund because of a manager change, yet this was the No. 1 reason given by professional advisers responding to the same question.
"One reason I'd sell would be if something fundamentally changes with the structure of management or a key portfolio manager or a good chunk of the team left," says
, a certified financial planner with
Wheat First Union
in New York.
Boyle's firm eliminated
Putnam Vistafund from its FundSource list of recommended mutual funds after a manager change in 1997. "With former manager Jennifer Silver, the fund had a stellar record," says Boyle. "But she left, and our guys went and visited Putnam and didn't feel
Putnam had in place another team that was going to keep up the performance she had."
Losing a star performer is one obvious reason to consider selling when a fund changes hands, but there is another less apparent cause for concern, according
, a Clifton Park, N.Y.-based certified financial planner. "When a new manager comes in, there is often a lot of reshuffling of the portfolio, and anyone holding the fund is likely to get hit with cap gains," says Johnson. "So it makes sense -- especially if you are at all uneasy about the change -- to sell then."
Johnson recently sold all his clients'
funds because of poor performance and the confusion over the fund company's proposed sale to
(the deal was later called off). "The combination of the shrinking asset base due to poor performance and the uncertainty over the Liberty deal made it a candidate for sale," says Johnson.
Besides a manager change, professional planners also consider selling when a client's circumstances change -- moving out of more aggressive funds as clients age, for example. Also, a change in tax status may prompt a sale, says
, a certified financial planner with
ARS Financial Services
in Valley Stream, N.Y.
"A client's tax status may change, and we'll need to find a fund that doesn't have a huge cap-gains exposure," says Rosenberg. "This year, we switched some clients out of some actively managed blue-chip growth funds, which have huge cap gains, into large index funds with fewer capital-gains distributions."
Don't Forget the Spectra Fund
After Wednesday's column on the spicy but pricey
funds, I was bombarded with emails telling me I had forgotten the best Alger fund of all -- the $395 million
Spectra fund, Alger's only no-load fund and a strong performer this quarter. It was up 15.4% vs. a 5% rise for the
Guilty, with an explanation, your honors: The folks at Alger failed to mention the fund when I asked about Alger-managed retail funds. And you won't find it on the Alger fund Web site either. That's because the fund's best feature makes it an outcast among Alger's load funds: It's a no-load fund. That means no sales charge and no compensation for brokers. If the fund family put Spectra on its Web site, investors who bought from brokers would find out they don't have to pay a load to access the stock-picking expertise of David Alger, and chances are brokers would balk.
readers, and a second call to the folks at Alger, I now know Spectra has its very own
Web site and telephone number (800 -711-6141).
Though a no-load, it's still not cheap. Spectra carries a 2.1% annual expense ratio vs. a 1.7% average for capital appreciation funds, according to
. The fund has a $1,000 minimum for non-IRA accounts and a $250 minimum for IRAs.
My apologies for missing the boat on this one, and many thanks to the sharp-eyed readers who wrote in to correct me.
TSC Fund Forum aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.