Hear that? It's the sound of fund professionals and financial planners sighing in unison. No mistaking the collective "tsk-tsk," either. Yes, almost anyone who makes money from mutual funds is also making a lot of noise about the cool-down of America's fund fever.
Growing ranks of do-it-yourselfers think they can do a better job than managers, and the flow of fresh money pouring into equity funds is down. (Gasp!)
Even die-hard fund fans don't hesitate to shake up their portfolios constantly, voting with their feet if short-term numbers can't beat the Street. (How dare they?!)
The problem, say some industry watchers, goes beyond the fact that only a handful of active managers match the indices, or that the attention span of investors keeps getting shorter and shorter. Mutual funds, they say, don't just need better records and a more patient public. Something else is missing.
Here's how the argument goes: What we need are master managers like
, the former
superstar who steered
Magellan to the top of the charts in the 1980s and who is still so well known and well respected that Fidelity flaunts his photo in ads, barely bothering to identify him. That's right. Cult figures certain to draw a crowd (and plenty of cash) could convince us that money managers really can add value. Yeah, the real trouble with the industry is that it just doesn't have a Peter Lynch anymore.
Hmm. I'm not so sure. It's certainly true enough that few can live up to Lynch's legend. One of his successors at Magellan, Jeff Vinik, made a losing bet on bonds, tarnishing his reputation as well as Fidelity's. Bob Stansky, the current Magellan manager, helped to turn things around for the world's biggest fund, but he's hardly the celebrity Lynch was.
And what about the other superstars? Value legend
, once known as the "scariest SOB on Wall Street," left the business six months ago, and his successors are struggling to rack up a comparable record in this go-go growth market. Ken Heebner, a.k.a. the Mad Bomber, who can boast an awesome 10-year average return for his
CGM Capital Development fund (up 20% annually), has hit a rough patch lately. That mid-cap blend fund is now in the bottom fifth of its category for the past 12 months and has lost money so far this year. Some other once-red-hot fund "gurus" who recently hit tough times: former growth-stock star Gloria Santella, whose
Capital Opportunities fund plunged to near bottom of its category, is out the door at
; and Patrick Adams left
just last week after investors pulled millions from his underperforming
Berger 100 fund.
Mark Mobius, the dean of emerging markets? The sixtysomething Yul Brynner look-alike is still a great showman with a knack for self-promotion. And his bargain-hunting in far-flung markets around the globe has been paying off lately.
Developing Markets has gained some 36% year to date. But three-year numbers are stung by the Asian contagion, and the fund couldn't get out of negative territory in 1997 and 1998.
There has been one real standout in the market's recent memory --
Index 500, the fastest growing. But it's an index fund, and though its manager, Gus Sauter, is one of the best in the business, his success really derives from the success of the large-company
But I say, so what? I don't think heroes really are the answer here.
Sure, some of the shift from funds to stocks (and from out-of-favor styles to fashionable ones) can be blamed on the impatient or uneducated, those who think yesterday's hot winners are guaranteed to sizzle tomorrow. And yes, it's easier to do well on your own in a bull market like this one, and these fleeing funds may get a painful dose of reality when the bears wake up again.
But would a hero change all that? Maybe he or she could sway some of the more restless investors. Yet isn't it a good thing that when investors flock around a fund manager, they're much more likely to ask for an explanation than an autograph? We are better educated about our money matters, more skeptical and exacting.
Now, this is not to say that you should look just at the record and not know your managers. You do need to understand their trading styles, their investment philosophies.
But to blame the ills of the industry on the lack of celebrity just doesn't cut it. The "cult of personality," to borrow a line from
, won't alone bring money back.
Rather than searching for a hero to honor, maybe we should take our hats off to the investors who keep high standards for "stars" and demand that their managers pick stocks better than they can.
What do you think? Let me
know . I'll respond to your opinions in an upcoming column.
Brenda Buttner's column, Under the Hood, appears Thursdays. At time of publication, Buttner owned shares of the Vanguard Index 500 fund, 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