No one mourns the passing of a mutual fund. The death of a fund does not diminish us all. If anything it gives more people a chance to enrich their lives, as funds that are liquidated or merged out of existence are mostly unloved, unlucky and unfortunate.
About 200 traditional funds and more than 100 exchange-traded issues took the big dirt nap this year, while about 550 other funds were euthanized through mergers. It’s a motley collection of marketing failures, uninspired management, stubborn belief systems, goofy ideas, and big blunders.
In the spirit of year-end retrospectives showing famous people who died in the past 12 months, let’s whistle past the mutual fund graveyard telling stories of for whom the bell tolled.
Here are a few of 2015’s most notable stiffs:
Described in 2007 by TheStreet.com as “the best fund you’ve never heard of,” Birmiwal Oasis, ultimately, became one of the worst funds you never heard of.
From 2003 through 2007, Birmiwal Oasis turned $10,000 into $67,000; from then until its death early in 2015, it turned that $67,000 back to about $20,750. In its 11 full calendar years, it topped its Morningstar Inc. asset category five times, finished dead last twice and was in the bottom 3% of the pack three times.
Manager Kailash Birmiwal, a former college professor in electrical engineering, apparently never gave an interview and didn’t show up to accept awards during the fund’s heady early days, and had about three-quarters of the $6 million left in the fund at the end. He was a wild trader, flailing even more when performance grew worse, culminating in portfolio turnover of around 2,000% in 2014.
Ultimately, the fund served as a reminder that it’s much easier to reach the top than to stay there.
This fund-of-funds was run by Roland Manarin — who has hosted a weekly radio show in the Omaha, Neb. area for almost 30 years — and apparently was managed the exact same way a below-average investor might run a portfolio, because it paid too little attention to costs.
Lifetime Achievement actually paid 12b-1 fees and other heightened expenses that could have been avoided by using institutional tools and share classes. That diluted returns and fell short of regulatory requirements to seek “best execution.”
In 2013, Manarin investment Counsel agreed to pay the Securities and Exchange Commission about $1 million to settle charges that it failed to buy institutional shares that would have lowered costs — and improved performance — from 2000 to 2010.
Beyond the regulatory blunder, the fund’s real lifetime achievement was investment mediocrity.
More companies abandoned “alt funds” this year than any other single fund type. In part that’s because there are a lot of alternative categories, from alternative global macro to alternative multi-strategy to alternative equity market-neutral funds.
This dead pool proves that managers are throwing funds out there to see what sticks. They’re pandering to an advisory community that wants to sell alternatives and promulgating ideas, premises and strategies that are half-baked or, upon further review, unappealing.
As a result, about 50 different alt funds shuffled off their mortal coil in 2015. That’s a good start.
AlphaCentric Smart Money
The fund that promised to buy companies experiencing significant “smart money activity” wound up being dumb money. AlphaCentric promised to follow the so-called smart money — corporate insiders and experienced, well-informed investors – to profits.
Instead, the fund was down about 16.5% this year, dead last in Lipper Inc.’s “alternative-event-driven funds” category, more than doubling the loss of the nearest competitor. AlphaCentric — where the firm’s slogan is “the future of investing” — announced in November that the Smart Money fund had no future. It was liquidated on Dec. 21.
3D Printing Robotics and Technology
Hard to believe this fund didn’t take shape (get it?), but highly specialized funds based around niche industries attract hobbyists, early adopters, and volatility.
This fund opened in January 2014 as the 3D Printing and Technology fund, which lost more than 25% by the time it added robotics to its name and the mission last July. Despite having told shareholders to hang in because “we feel 3D printing is at the forefront of a manufacturing revolution,” management — which to its credit had the biggest chunk of the assets in this tiny fund — gave up and the fund went from 3D to flat-line in November.
Giant 5 Total Investment System and Giant 5 Total Index System
Investors love cute ticker symbols. They like performance better. The Giant 5 funds-of-funds had the tickers — FIVEX, which it changed to CASHX, and INDEX for the second fund — but not the results. The funds lagged their Morningstar peer group virtually their entire lives, and were put out of their misery (and ours) in March.
Thomas Crown Global Long/Short Equity
Managers Frank Crown and Steve Thomas can’t help it that combining their last names evokes a popular movie about a bank robbery (the Steve McQueen version) or a museum heist (the Pierce Brosnan version).
They could help it that after a brief fling in which their market-neutral strategy proved less volatile than the market — but still lost ground during the market’s third-quarter downturn — they gave up on the whole Thomas Crown, um, affair and shuttered the fund before it reached its first birthday.
Fallen Angel Value
Another fund run by a radio personality — in this case Gabriel Wisdom — Fallen Angel Value proves the point that hosting a show does not highlight a stock jockey’s ability to run a mutual fund. In this case, the fund hoped to profit from buying stocks significantly off their all-time highs. But saddled with a high expense-ratio — not surprising for a tiny fund — performance was a disappointment. The fund earned a one-star rating from Morningstar for most of its nine-year run. There’s nothing heavenly about that.
View more information: https://www.marketwatch.com/story/death-for-these-funds-couldnt-have-come-soon-enough-2015-12-23