I'm not the only one who wants to consign some mutual funds to eternity.
Following last week's
column on funds that should be put out of their misery, readers started circling the trash heap with their own nominations.
"Have you considered sending
Strong Discovery out to pasture?" asks
Actually, I have.
This mid-cap portfolio should be called "Strong Disappointment."
Through Oct. 31, the fund's 10-year average annualized return of 10.2% trails 97% of funds in its category, according to
. Defying the near-impossible, the fund's five-year numbers are even worse -- an average of 6.8% every year, putting it behind 99% of its peers.
Sure, this $196 million fund's emphasis on smaller-cap stocks hasn't helped its performance. Small-caps haven't been able to compete with large-caps for much of the 1990s. But even for a small-cap fund, this one is truly dreadful. This year, the
, a small-cap benchmark, has gained 5.8%, while Strong Discovery is down 13.4%.
The fund's largest holding at the end of the third quarter, pet supplies distributor
Central Garden & Pet
, is down 50.4% this year.
Even more astonishing: Dick Strong, the firm's founder and namesake, is one of the two managers of the fund. (The other is Chip Paquelet.)
In the fund's June 30 semiannual report, the two managers told shareholders: "Please understand that, above all else, we value and appreciate the enormous trust you have invested in us. We absolutely abhor having to report poor results to you. And, rest assured, we have every intention of improving the job we do on your behalf. We will keep you posted."
While shareholders aren't seeing decent returns, at least they're getting a small amount of contrition.
A Strong Dislike
"You can add the
Strong/Schafer Value fund to the list, says reader
. "It made
list of 'Trust Funds.' So what's the attraction of this fund?"
At one time, this value fund was quite attractive. But you'll have to travel back a couple of years. From the end of 1987 through 1997, Strong/Schafer Value delivered an average annual return of 19.3%, compared with 18.1% for the
Around the middle of last year, the fund fell off of a cliff. It ended 1998 down 6.6%. This year, it has fallen 18.3%.
Value stocks have been largely out of favor, which is part of the problem. Manager David Schafer's other problem was that some of his stocks blew up in his face.
Additionally, Schafer's fund got awfully big, awfully fast. It went to more than $2 billion in assets by 1998 from $185 million at the end of 1995. Perhaps this rapid swelling was part of the problem. (
Jim Cramer certainly thinks bigger isn't better.) Now the fund has $659 million.
If its performance continues to head in this direction, assets will undoubtedly continue to shrink.
Too Much of a Bad Thing
agrees with my critique of another fund on the list, the
"After holding Kaufmann for almost six years, I too lost patience with it. There is no excuse for that kind of performance in today's market. I'm sure that my 11-year-old son could do a better job of picking stocks."
Lastly, I knew that proponents of bear-market funds, particularly the
Prudent Bear fund, would come out in force to defend these portfolios.
"The Prudent Bear fund is a great way to short a market more overvalued than at any time in history. Yes, the fund is expensive and will suffer on market advances; however, it offers diversification on the short end of the market," writes
Michael Scott Pfeiffer
. "The Prudent Bear fund has a place in fund investors' portfolios. When this market tanks, you'll be glad you took out BEARX insurance."
Nice try, but I'm still not convinced.
For one, bear markets, compared with bull markets, tend to be historically short. By buying a bear market fund, you're essentially trying to time the market.
That's a bet I'm not willing to take.
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Dear Dagen 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.