Another tech-stock picker is packing his bags.
Paul Meeks, manager of the struggling
Merrill Lynch Global Technology fund since its 1998 launch, left the firm at the end of the day Monday, according to regulatory filings and a Merrill spokesman. He's just the latest tech specialist to seek greener pastures in the wake of the
60% collapse since its peak in March of last year and the second to leave Merrill in about a month.
Expect the ranks of tech funds and tech managers to keep thinning as fund firms, perennial preachers of diversification and long-term thinking, unwind their excessive and, in hindsight, short-sighted reliance on tech-focused funds.
The Global Technology fund was less erratic than many of its peers, but it lagged behind them too. In the sector's recent hay day the fund rang up an 89% gain in 1999, but that actually trailed 81% of the tech funds out there. Over the past three years the fund averages a 6.6% annual loss, which is worse than 79% of its peers.
Meeks also ran Merrill's
fund, which launched to much fanfare 12 days after the Nasdaq's peak in March last year. After pulling in more than $1 billion, the fund cratered, closed in May and recently
merged into Global Technology.
R. Elise Baum will replace Meeks. Baum has worked at Merrill since 1992 and has run the firm's
Mid Cap Value fund since January. The fund's 23.4% gain since Jan. 1 beats 97% of its peers, but the move might raise some eyebrows since bargain-hunting value managers typically steer clear of the mercurial and pricey tech sector.
Meeks was a rare straight shooter in talking stocks. His departure follows just a month after Jim McCall, a tech-heavy growth manager,
left the firm. A
wave of growth and tech managers have left their jobs or gotten pink slips this year. a Merrill spokeswoman wouldn't say whether Meeks resigned or was let go.
The bottom line for investors is that a slimming of the tech-fund ranks is probably good for investors, since fewer funds often translate to better funds. It's also good news for tech fans since fund mergers and manager switches often signal a bottom for a battered sector.
The argument for not owning much company stock in your 401(k) didn't need much ammo after
collapse, but it got some this week.
A study released Tuesday found that when a company offers its own shares among the investments available in its 401(k) retirement plan, some 30% of employees' balances are invested in the company's stock. Now that the cratered tech sector has taught investors why they shouldn't make massive bets on one sector, betting this much on just one company seems like a glaring bold-faced mistake.
The upshot for investors is that if your company matches your 401(k) contributions with company stock, there's no need to buy more. Moreover, if you can you should sell those shares as soon as possible and spread your money among various stock and bond funds. The upshot for regulators is that they should start limiting the amount of stock a company can force down its employees' collective gullet.
"It's good to own
your company's stock, but you shouldn't have your entire livelihood and well-being riding on your company," says Russ Kinnel, director of fund research at Chicago research house Morningstar. "You've got a lot riding on your company already: your current income, your career and your prospects for future earnings. Enron is an extreme example, but sometimes the wheels of the economy just turn against you."
Enron is just the latest collapsed market titan to prove this point. Its tumbling shares crushed the nest eggs of many folks who helped the Houston firm to a $70 billion market cap just a year ago.
On Tuesday the Investment Company Institute and Employee Benefit Research Institute released a report stating that 19% of 401(k) money was in company stock at the end of last year. That figure rises close to 30% once you screen out plans that don't offer company stock. That's in line with an Oct. 31 figure from Hewitt Associates. Plans with no employer-directed contributions have about 22% of their money in the employer's stock. That's high, arguably too high, but far below the 53% that company stock commands in plans where employers can decide where their matching contributions are invested.
In many cases they don't have much choice. In some 401(k) plans, where 42 million workers have invested $1.8 trillion to fund their retirement, employees spread their contributions among a series of stock funds, bond funds and company stock.
The folks at Enron, who saw their shares fall 97% in just 90 days, were required to hold those shares until they're 54 years old. If a hypothetical employee had a $100,000 401(k) account at the start of this year with 30% riding on Enron's stock and the rest invested in an S&P 500-tracking index fund, they'd be left with about $61,000 today.
"Enron is a big advertisement for having a diversified portfolio," says Bern Fleming, portfolio manager of the
AXP Utilities Income fund, which held the stock earlier this year but no longer owns shares.
It's hard to imagine any finance guru would espouse a strategy where you buy shares of the company where you work and blindly hang on to them.
"If a pension fund manager ran a fund like that they'd be out of a job," says Morningstar's Kinnel.
The ICI/EBRI study found that the average 401(k) account balance finished last year at $49,024 -- not much higher than it was at the end of 1998. Given some investors' fat and often-unintended bets on their company's shares, that's not a surprise.
Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
email@example.com, but he cannot give specific financial advice.