Nothing gets me in the holiday spirit more than poking fun at the fund world's miscreants for a year's worth of blunders and buffoonery.
My two-week holiday tradition, called the Lump of Coal Awards, is now in its 12th year of finger-pointing at the bad boys and girls of the fund business, the ones deserving of an inky chunk of carbon in their Christmas stocking for 2007.
The Lump of Coal Awards recognize managers, executives, firm watchdogs, and other fund-world types for action, attitude, behavior or performance that is misguided, bumbling, offensive, disingenuous, reprehensible or just plain stupid.
The 2007 Lump of Coal Awards go to:
Securities & Exchange Commission Chairman Christopher Cox
Category: Failing to walk the talk.
Cox has talked like a champion of the consumer, speaking favorably on a number of issues, most notably on changes to the 12b-1 fee. He promised to get these reforms done in 2007, and none of them is coming to pass this year. Some, like the rule requiring an independent board chairman, now appear dead.
Putnam's Retirement Ready funds
Category: Failing to be ready.
In Lipper Inc.'s "mixed-asset target 2010 funds" category, Putnam Retirement Ready 2010 is dead last in year-to-date performance. Another Putnam target-maturity fund, Retirement Ready 2020 occupies the cellar in the 2020 group. Ditto for the 2030 fund in its category and the 2050 fund in the 2030+ group (thereby saving 2040 and 2045 from being the laggard in that group).
Having the bottom-feeder in target-maturity date - even over a period as short as 12 months - is tough to do. Until those numbers change, these funds are ready for nothing.
The Critical Math fund
Category: Failing mutual fund arithmetic.
The idea here - according to the firm's aptly named Web site unusualfund.com - is to use a market-timing strategy based on an unemotional, quantitative approach. As of Nov. 30, the fund's 2007 loss of 6 percent ranked dead last in Lipper's "flexible portfolio" category, dragged down by operating expenses of roughly 3 percent. Apparently, someone at the fund forgot that costs and return numbers are the critical math for shareholders.
Monetta Young Investor
Category: For giving investors funds with that Happy Meal.
This gimmick fund built for children actually declared July "McDonald's Happy Meal Month," giving anyone who opened a new account - and all shareholders born in July - a certificate good to receive a burger, fries, drink and small toy from Mickey D's. With a $250 minimum initial investment - plus performance that has lagged three-quarters of all large-cap funds - the cost of that burger is quite the whopper.
Directors of Franklin Real Estate Securities fund
Category: Inability to recognize a bad fund when they see it.
Franklin Real Estate Securities is off more than 20 percent this year, but even when this fund has made money, it has badly lagged its peers. Directors acknowledged as much in the fund's annual report, noting that "the Fund's total return for the one-year period, as well as for the previous three-, five- and ten-year periods on an annualized basis, was in the lowest quintile" of its peer group. That is putting lipstick on a pig, because the fund actually ranks in the bottom 5 percent of its peer group for all of those time periods, according to Morningstar Inc.
Adding eyeliner, a party dress, and a suggestion that this pig will dance, the same paragraph said: "The Board found such performance to be acceptable."
The Securities and Exchange Commission
Category: Failing to fight the good fight.
The SEC allowed former Putnam top-dog Larry Lasser to settle a lingering fraud lawsuit for a $75,000 fine. The case was supposed to send a message to industry executives that their necks are on the chopping block if bad things happen on their watch.
Instead, it proved the opposite. Lasser had a $78 million severance package from Putnam - on top of tens of millions earned over his years there - and the company agreed to pay his legal fees. If the best the SEC could do was a one-fingered slap on the wrist (one-tenth of 1 percent of the severance deal), it should have tied this up in court for years, effectively keeping Lasser in a state of limbo. By settling on the cheap, the SEC sent a message that managers have no reason to fear being caught breaking the rules.