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Finally, a Mutual Series Story Where Price Is No Object

Life after Michael Price is starting to look more promising.

I can hear you now: "Another story on

Mutual Series


Hold on a second. I know we've certainly seen lots of them lately -- all pretty much alike, still spotlighting the master manager who left instead of focusing on the team in charge now. If I followed the formula, here's how I would start:

Michael Price's former office in the headquarters of Mutual Series shows little sign that the high-profile investor once called it home. No computers flashing or CEOs calling. The corner room overlooking a posh New Jersey suburb is empty, save for some forgotten picture hooks on the wall and a few pieces of leftover furniture. As he walks by, 39-year-old chief investment officer Rob Friedman laughs. "I'm told nothing in here matches." Trouble is, the records of Price's proteges don't match that of the legendary value master. Once Price stepped away from supervising the funds full-time, they hit tough times. Last year, all six delivered only single-digit returns (one actually lost money) and nearly all were in the bottom half of their categories. And Price wasn't the only one to leave; many investors wanted out, too, and started yanking their money.

No, no -- scratch that paragraph. It's all true, but I don't think it tells the real story these days. Yes, Mutual Series is Price-less. He officially stepped aside last November. But his successors have run the show much longer than six months. After selling the funds to

Franklin Templeton

in 1996, Price started handing over control to his lieutenants, a half dozen longtime Mutual managers trained under Price. No question they had a very rough 1998:


Mutual Qualified and


Mutual Shares up just half a point,


Mutual Beacon gaining about 2% and


Mutual Discovery in the red better than 1%.


Mutual European and


Financial Services fared a bit better but were still far behind their benchmarks.

Even the managers concede they were hit hard. "I have never seen anything like 1998," says Larry Sondike, a senior vice president who co-runs Beacon.

Yet a closer look at the numbers reveals a different story. After surviving a brutal third quarter, the three big funds (Qualified, Shares and Beacon) surged in the fourth quarter -- each delivering a strong 13%. And year to date, each is well ahead of the

S&P 500

and ranked among the top fifth of its peers with a 14% return. Mutual Discovery is also up, 11% so far this year, and Mutual European rose 9% to jump from the bottom tenth of Europe stock funds to the top 5%. The worst performer of the bunch, Mutual Financial Services, has still gained better than 7%. According to CIO Friedman, this turnaround also turned around investor sentiment; outflows have basically stopped.

What's the deal? Is Mutual Series just riding the resurgence of value and mid- to small-cap stocks in the past few months?

Yes, in part. But the notable improvement in relative performance suggests that perhaps last year's restructuring might deserve some credit, too. Instead of "investment by committee" with all executives overseeing the main funds in addition to covering several dozen stocks, each fund now has a lead manager responsible for its performance. "It was a big boon to appoint portfolio managers. The irony is, we're a better team than before," says Friedman, who joined Mutual Series 11 years ago. "It's a much more intense environment."

Some dramatic portfolio pruning took place as well, with the number of names in each fund nearly cut in half. At about 150 per fund, this is hardly a concentrated approach, but the managers think it gives them an edge. "Our best ideas are more meaningful," says Sondike.

But there will be no change, promises the management team, in a disciplined investing style that hunts for underpriced and unloved current stock picks such as

Lockheed Martin



Bank One


. Mutual could never be accused of style drift, even when the go-go growth market nearly made value a dirty word. "We knew we were right. We just didn't know if the starting gun would go off in three months or two years," says Friedman.

Shareholder activism, another trademark of the Mutual brand name, is alive and well, too, they insist. There hasn't been a public, high-profile fight such as those with

Chase Manhattan





in a while. But behind the scenes it seems

Thermo Electron


is feeling the heat. The guys at Mutual don't think company management is moving quickly enough to reorganize. "They have 23 divisions and want to go to 16. That's a step in the right direction, but we hope it goes down to three core divisions," says Friedman. Another issue: pay packages for certain executives, including the CEO. "We want to be assured he's coming in to serve shareholders," Friedman adds.

And is Mutual Series doing the same -- serving its shareholders? The third quarter 1998 numbers are troublesome. During last summer's selloff, all the Mutual funds plunged -- exactly when a deep value philosophy was supposed to offer protection. And longer-term returns are less than stellar. On an average annualized basis, about 30% of their competitors beat Mutual Beacon, Shares and Qualified over the last three years.

There's also a lot of critical chatter on Internet message boards about an extensive advertising campaign launched last year. Plus the load issue is impossible to ignore. Although it wasn't levied on investors who owned shares when Franklin bought the firm, 5.75% is quite a sales charge facing prospective shareholders.

As for the empty corner office with the mismatched furniture? If you're still pining for Price, it will be worth watching the recent comeback in fund performance. That's one thing shareholders will certainly hope will be changed since November.

Brenda Buttner's column, Under the Hood, appears Thursdays. At time of publication, Buttner had no positions in the funds mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While she cannot provide investment advice or recommendations, Buttner appreciates your feedback at