One thing fund investors know for sure about 2008: We won't have the Ameritor Investment fund to kick around anymore. Inarguably the worst mutual fund in history, it is one of hundreds of funds that were snuffed out of existence in 2007.
Mutual funds are not human, so their death - whether by liquidation or merger - does not diminish us the way the passing of a friend or loved one does. While there is no mourning period, it would be wrong to ignore for whom the bell tolled, if only because some funds leave behind a legacy of lessons for fund investors.
With that in mind - and in the spirit of the televised retrospectives showing famous people who shuffled off this mortal coil in the last 12 months - it's time to pay final respects to some noteworthy funds that passed in 2007.
The Ameritor funds started life in the 1950s as the Steadman funds. They were nicknamed the "Dead Man funds" because they finished dead last in their peer group, losing money all the way, for years. Ultimately, Steadman Oceanographic - which was supposed to profit from companies that were farming and building communities at the bottom of the sea - and Steadman Technology ran through almost all of their money.
When Charles Steadman died in the late 1990s, his daughter took over. The funds had no prospect for growth, but she had no reason to shut them; the double-digit management fee was like a personal annuity, up to the point where it bled the fund to death. When the Securities and Exchange Commission finally filed paperwork stating that the fund "had ceased to be an investment," the loss over the last 10 years was 98.98 percent, turning a $10,000 investment into $102. It took about four decades for the losses to drive shares down to less than a penny, but Ameritor got the job done, and then kicked the bucket.
Chicken Little Growth:
This offering "for people who are afraid of the market," should have made people afraid of funds. The manager used a focused portfolio with more than half of assets in just three stocks, changing the portfolio just once a year; it got him off to a great start - a 41 percent gain in the fund's first 12 months - but could not last. There were problems over the already-high expense ratio - customer accounts were temporarily hit up by management to pay bills - and eventually the stock-picking (or lack thereof) brought the sky down on the whole thing.
Reynolds and Reynolds Opportunity:
When I first met manager Fritz Reynolds at an industry conference in the late-1990s, he had built a fabulous track record using a style that was attracting a lot of attention. Among the money that flowed in his direction was my wife's first Roth IRA money. But somewhere near the market's peak in 2000, Reynolds clearly had changed; he started believing his own press clippings, as if his strategy was infallible. I told my wife to close her account.
It was a good call, because Reynolds Opportunity gave back all of the 60 percent it gained in 1998 and its 70 percent pop in 1999 in a horrendous run from 2000 to 2002. Despite a huge bounce-back of 77 percent in 2003, the fund never really recovered; at the end, its 10-year annualized gain was just 1.02 percent, lagging almost all of its peers.
Reynolds fund was not much better, finishing in the bottom 10 percent of its peer group in five of its seven years. Reynolds Blue Chip survives those two, but seeing as how these sister funds always moved in sync, one has to wonder why.
The lesson for investors: Do not confuse a bull market for brilliance.
In 2000, as the market started into the bear market, Boyle Marathon was the top large-cap blend fund, with a gain of roughly 85 percent. It was the fund's only appearance atop the charts, as performance proved uninspiring from then on. Along with the Reynolds funds, Boyle proved that any fund can get to the top of the charts for a short stretch of time; finishing the race and building a reputation are something completely different.
The n/i Numeric Investors funds:
It was a sad end to a fine shareholder-friendly fund family that took a quantitative approach to running money, but the guys behind the Numeric Investors funds felt that they needed to focus on the rest of their money-management business. The funds represented $450 million of more than $13 billion under management. The closing meant a significant capital gains problem for investors who held Numeric in taxable accounts.
The moral of the story is that when mutual funds are an afterthought to a firm's money-management business - and this happens a lot - shareholders must forever worry that managers could just walk away.