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Investors in funds that have plummeted 20%, 30% or more over the past 12 months certainly may want to see their fund managers fired. As justified as that may seem, though, it appears that not too many managers are on the verge of losing their jobs. How could that possibly be, you might ask, if you're invested in a fund that's down 50% or more?

Simply put, there's a lot of bad company to go around and, rightly or wrongly, fund companies typically judge the performance of their portfolio managers in relation to that of their peers. That means that if you are invested in a fund that's down 30% but the category is down 50%, your fund manager is a hero. That's right, a hero.

Thousands of mutual funds in just about every sector are in the red. Last year, 4,829 out of a total 7,827 domestic equity funds, or 62%, posted negative returns, according to


. This year it's even worse: 8,557 out of a total of 9,079 domestic equity funds, or a staggering 94%, delivered negative returns in the first quarter.

Why Managers Are Under Fire

Investors may argue that fund companies such as




, which tout their bottoms-up approach to investing, should be held responsible for not getting out of stocks they claimed to know so intimately. And a number of investors are, in fact, galled that the mutual fund industry isn't holding itself accountable for the severe losses of the last five quarters.

One disgruntled investor in the


Merrill Lynch Focus 20 fund, a large-cap growth fund with a broad investment mandate, argues that portfolio manager Jim McCall was hired a year ago to pick the 20 best stocks in the entire market, not just in technology. But because 17 of McCall's 20 holdings are tech stocks, the fund is down a whopping 55.7% so far this year.

"McCall was supposed to buy his 20 best stock ideas, period. Nobody ever told McCall he had to buy tech!" says the angry investor.

The harsh reality is that in relation to their peers, only about 10% of fund managers are walking a performance tightrope, according to Lipper data. In other words, playing by the fund industry's rules of performance relative to a fund's peers in this down market, only a handful of portfolio managers may be in jeopardy of losing their jobs.

"Fund companies aren't looking to replace portfolio managers -- yet," says Lawrence Lieberman, managing director of

The Orion Group

, an asset management-executive recruiting firm. "Give us another six to 12 months of similar market conditions with similar outflows to February

when there were net outflows of $3 billion from equity mutual funds, and then you might see some portfolio managers transitioned out of their position," Lieberman says.

"We don't see any trend right now to replace portfolio managers because performance measurement is on a relative basis, and everything is down," agrees George Wilbanks, a managing director with executive search firm

Russell Reynolds


What the Numbers Show

For example, of the 279 multi-cap core funds in 2000, only 29, or 10.3%, did worse than this category's average negative 3.6% return. Likewise, very few balanced funds did worse than their peers in 2000. Only 27, or 5.8% of all 465 balanced funds, underperformed the average 1.7% return for this category in 2000.

However, as might be expected, the number of underperformers is higher for technology funds, with 43 funds, or 24%, out of 177 funds underperforming the average negative 33% return in 2000, according to Lipper. In the first quarter of this year, 17%, or 57 out of a total of 341 technology funds, did worse than the average negative 36.5% return.

The big losers are worth noting, because a number of the losses are real doozies. The


Jacob Internet fund was the worst-performing technology fund last year, posting a negative 79.1% return in 2000. So far this year, it's down "only" 50.7%.

Even in Lipper's multi-cap core category -- basically "go-anywhere" funds with the broadest investment mandate (which have the least excuse for negative returns) -- a number of funds did considerably worse than the average negative 3.6% return. The two biggest disappointments in this category in 2000 were


Trent Equity, down 35.6%, and the


Hodges fund, down 29%.

But with the exception of funds with the greatest losses, executive recruiters confirm that fund companies are not on a tear to replace portfolio managers. Fund companies typically wait to see if a fund manager has consistently underperformed his or her peers for eight quarters or longer, Lieberman says.

Mutual fund consultant Burton Greenwald also reminds investors that many fund companies still will consider a fund manager's track record. "My gut feeling is that there isn't a lot of cause and effect. Some of those funds that have posted 40% or 50% declines in 2000 are the same funds that had triple-digit returns in 1999, and many of those managers still have good three- and five-year returns," Greenwald cautions.

A Sign That the Tide May Be Turning

A number of fund companies, however, are quietly merging or liquidating funds, a clear sign of troubles ahead at fund companies, according to a


report issued earlier this week.

The report noted that 225 funds were liquidated last year, topping the previous record set in 1998, when 222 funds were shuttered. The report concluded that as the market downturn enters its 13th month, we can expect many more funds to shut down -- particularly in the technology sector, where, curiously, only three of the 39 Internet funds have been closed down and none of the general technology funds have been axed.