The 12th Annual Lump of Coal Awards recognizes managers, executives, firms, watchdogs, and other fund-industry types for action, attitude, behavior or performance that is misguided, bumbling, offensive, disingenuous, reprehensible, or just plain stupid.
Last week, I highlighted some of the award winners deserving of coal in their holiday stocking this year. Today, it's the rest of the "winners."
The final Lumps of Coal for 2007 go to:
Managers of the Blue funds
Category: Failing to get out the vote.
The tiny Blue funds - they come in large- and small-cap flavors - allow "progressives" (translation: Democrats) to invest in companies that "act blue" and "give blue." Beyond that, management claims to be "actively engaging in shareholder resolutions and proxy voting in an effort to promote increased transparency in corporate political giving."
At the end of August, however, management confessed to the Securities & Exchange Commission that the custodian for the funds never actually forwarded proxy materials, so the funds "did not cast any votes with respect to any matter considered at any shareholder meeting."
For a fund that is all about how people vote, a few missed proxies is disappointing. Based on the funds' portfolios, however, Blue fund management missed more than 300 corporate elections.
Mutual fund directors
Category: Putting their mouth where their money isn't.
A survey of fund directors done by PFPC, an industry service firm, showed that three-quarters of trustees "agree or strongly agree" that funds should be required to tell investors the dollar amount - rather than the percentage - they're paying in fees. It's a great idea that directors could push for, and yet far less than three-quarters of all funds have that information on investor statements. Go figure.
Category: Giving investors no say, because it might not like what it hears from them.
In the spring, Fidelity sought to merge its Nordic fund into Fidelity Europe, asking investors to approve a move that changed the focus and strategy of their investment. Nordic investors shocked the fund world by voting the deal down, which should have sent the message that shareholders do not want change for the sake of helping management.
So when Fido decided to change its Growth & Income II fund into the new Fidelity Mega Cap Stock fund, it was not about to take no for an answer, and it simply authorized the move. The changes in the fund's investment objective, asset pool and benchmarks were on the same scale as the changes Nordic was facing, but Fidelity deemed the alterations as not being significant enough to require advance notification or a vote. Bad answer.
Janus Capital Group
Category: Ads and actions that left consumers wondering about the future.
Janus ran ads in November talking about how its portfolio managers invest in the firm's funds, right alongside ordinary shareholders. It failed to mention that, by early November, 14 high-profile money managers had resigned or submitted plans to go in 2007.
When Minyoung Sohn, a real up-and-comer who ran Janus Fundamental Equity and Growth & Income, quit in November, the firm announced plans to merge Fundamental Equity into Janus Research.
Merging big, five-star-rated top performers into lower-rated funds with different investment styles is not the move of a company with a deep pool of ready talent. It is enough to make shareholders worry. Fund specialists suggested taking a wait-and-see approach to affected Janus funds, but the firm itself has done an awful job comforting shareholders, betting instead that future results - more than current disclosure and discussion of the issue - will calm investors.
Jim Kelsoe, manager of Regions Morgan Keegan Select Intermediate Bond fund and Select High Income fund.
Category: The Lump of Coal (Mis)Manager of the Year.
Kelsoe's funds had an impressive record, which attracted a lot of investors who did not find out until this past summer just how he did it. Specifically, Kelsoe had a huge slug of money in subprime paper.
RMK Intermediate Bond has lost 45 percent of its value this year; RMK High Income is down by more than 55 percent. That kind of performance is so bad that it creates another problem; as assets shrink and investors leave, the chance of recouping any value left in the bad paper actually falls. Kelsoe would have to be a miracle worker for the funds to recover from '07.