Editor's note: This is the first edition of a new weekly column, in which James J. Cramer will take a close look at various mutual funds and fund groups. The column will run every Friday.
When your mother-in-law asks you to review her funds, you tend to want to do a great job. No sense in getting the analysis wrong, especially when she thinks you know what you are doing.
But I must admit I wasn't ready for last Sunday's dinner surprise. Before we could be served some delicious pot roast, she handed me the
MFS Total Return fund's semiannual report and said, "What do you think about how they are doing?" I looked at her, a bit incredulous, saying, "You are asking me to do the impossible -- that is, you are asking me to evaluate the firm based on the 'semi-annual report' that it sends to you."
My mother-in-law is not schooled in the ways of American mutual funds. She is a common-sense person, schooled the way regular people are taught in this country. She said, "But this is their report. This is what they send out, surely you can make a judgment on them from it or they wouldn't send it!" I protested pointing out that the document was from March 31, 2000.
But she shot right back: "That came in yesterday's mail. That's hot off the presses." And then it hit me. What a duplicitous, ridiculous, Orwellian world these mutual funds live in. They are so concerned about
their precious secrecy -- even though they're playing with your money! -- that they send you information that is hopelessly out-of-date and then tell you to make a determination about them.
Beginning today, in this column, right here, I am going to do exactly what my mother-in-law wants me to, because, heck, my mother-in-law's right. This is the document they want you to grade them on or they wouldn't send it. I am going to look inside the fund, from the public document they share with you and make a judgment about their performance, their logic and their stock-picking abilities. Why not? I have picked stocks successfully for 20 years. That's enough of a credential where I am from.
How fitting that the first to be rated is MFS, the firm that "invented the mutual fund." The report starts with a letter from Chairman Jeffrey L. Shames, and I regret to say that it is a strictly generic treatise about dividends that seems, let's just say, lacking in cogency for anyone other than a business-school student writing a paper on the value of dividends. I found the constant references -- three times in two pages -- suggesting that you, the reader, work with investment professionals to figure investing out, a bit of a surprise. Isn't MFS the professional? Isn't that why my mother-in-law gave them her money to begin with? Seems like a come-on.
The fund had radically underperformed during the period covered. Which is too bad; had MFS bothered to include more recent results, it would have something to crow about. The fund's not doing badly vs. the averages. But remember, I am reviewing its communication with the shareholder, and during that period a 4% return vs. the 17.5% advance in the
, well, that speaks for itself. They blamed their balanced approach for the shortfall.
Now, stock picking. Any fund that still uses categories like "Business Machines" and "Business Services" -- that and gives the tech group no more than a 1.3% weighting -- is one that seems pretty skimpy to me. The largest tech position here is
! Hoo-hah, maybe someone will have to do some homework on the area. This fund is, however, chockablock with insurance and oils -- there's that dividend thing -- none of which seem to be doing very well in this market. A healthy, or should I say, unhealthy, dollop of banks and financial services -- the largest being
Bank of America
-- have been the chief ballast weighing down performance. The utilities have done OK and they have a bunch of them.
The top 10 positions are all pretty boring:
. No theme there, just a bunch of OK stocks. Coastal's done well. Super, in fact.
Of course, I have no idea what MFS paid for these and whether they are doing well or poorly on them. They don't provide the basis. My take? The almost total avoidance of tech makes me skeptical of this fund. The financials can't really be owned in a
-orchestrated slowdown. From what this document tells me, I am a seller, not a buyer.
Ahh, you might say, "That's not fair. You don't know how they are doing right now. You don't know what they own right now." To which I say, as long as we live in this cockamamie world where the funds send out old stuff and the Feds check off on it, I am going to review what they give us.
I don't like what I see. They might have founded the mutual fund. But that doesn't make it a keeper. Gramma: Time to move on. Time's 'a wasting.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may 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