Mutual Funds and the True Believers

Cramer sets his watch by the fund pattern.
Author:
Publish date:

Start of a new quarter and already most funds are behind. I know, that's a gross overgeneralization, but as is so often the pattern, the second quarter starts off just like the last one ended, despite dire predictions and wringing hands from those perennially blasting the narrowness of the market.

This pattern is not happenstance. I have studied it for years, and it has only become more, not less, visible, as more is learned about winners and losers in the mutual fund business.

Take this last quarter.

(JAVLX)

Janus Twenty was the clear winner, smashing the competition. So what happens now? How about article after article and TV story after TV story about how great Janus Twenty is? How can they resist doing this? Business journalists simply wouldn't be doing their jobs if they didn't chronicle this amazing story.

Janus Twenty is one of those funds that believes in its stocks. That means it can keep buying them up because it thinks they are cheap. That license to believe, accorded to all card-carrying growth mutual funds, allows more and more money to be plowed into the same stocks.

How about the speciality winners? Net funds of course. Net funds also have that license to believe; heck if you can justify $40 billion for

Amazon.com

(AMZN) - Get Report

or

Yahoo!

(YHOO)

, why not $50 or $60 billion? I mean, what's the difference? If

AOL

(AOL)

is bigger than

CBS

(CBS) - Get Report

,

Viacom

(VIA) - Get Report

and

Disney

(DIS) - Get Report

combined, why can't it be bigger than

General Electric

(GE) - Get Report

, too?

So, over the transom to the Januses and Munders come billions upon billions of new dollars. IRA dollars. 401(k) dollars. Play money. Real money. Nest-egg money. Gambling money.

And it gets deployed.

In fact, the only thing that changes this pattern is when the managers of these funds go on vacation for July and August and they want to lock in performance. No wonder June can be such a tough month at times for winners, as it was for the last couple of years.

Too cynical? Heck, not cynical enough. I see this pattern every year and I can set my clock to it. In fact, I did; hence my overly large Net exposure.

Fact of financial life: Those who fight it by sitting in small-cap funds or value funds or

Coke

(KO) - Get Report

and

Gillette

(G) - Get Report

funds will sleep well at night -- and during the day too. 'Cause nothing's going to take up those groups for the next six weeks. Nothing. Except for a periodic trade, which they wouldn't do anyway.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long AOL, Yahoo! and Viacom, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

letters@thestreet.com.