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Chuck Jaffe Archives | Email alerts
Dec. 18, 2011, 12:01 p.m. EST
By Chuck Jaffe, MarketWatch
BOSTON (MarketWatch) "” If you want a fire to burn hotter, throw some more coal on it.
This week, the heat gets turned up with the second helping of my annual Lump of Coal Awards, given each year to the bad boys and girls of the fund industry who deserve nothing more than an inky chunk of carbon in their holiday stockings. See Part 1 of the Lump of Coal Awards.
Now in their 16th year, the Lump of Coal Awards recognize managers, executives, firms, watchdogs and other fund-industry fumblers for action, attitude, behavior, execution or performance that is misguided, bumbling, offensive, disingenuous, reprehensible or just plain stupid.
And the losers are:
This was supposed to be the year when the SEC capped marketing fees "” known as 12b-1 fees "” charged to fund investors. SEC Commissioner Elisse Walter said at a fund-industry conference in late April that the agency would move with "full force" on its proposal to limit the fees during the second half of 2011.
Instead, there's been no real movement. Apparently, the agency's idea of "full force" is an empty promise.
TCW last year sued its former chief investment officer, Jeffrey Gundlach, after it fired him and he started his own company (DoubleLine) and took half of TCW's investment pros with him.
A key charge was that Gundlach had stolen trade secrets; in court, the judge and lawyers debated whether investment strategy could be compared to Colonel Sanders' formula of 11 herbs and spices for Kentucky Fried Chicken.
If investing worked like that, performance at TCW "” which still had the recipe "” and DoubleLine (purportedly working with it), would have been the same, just as chicken at one KFC tastes the same as at another.
Gundlach's crew, however, seems to add hot sauce. DoubleLine's funds virtually doubled the performance of all TCW's funds in the same categories this year. In fact, DoubleLine took in massive inflows of cash just as the trial began last summer, suggesting that the firm might have been helped "” rather than hurt "” by publicity over its legal entanglements.
TCW did win a part of its case, and a judge will determine the value of certain "trade secrets," but chances are that amount will not be much more than the $66.7 million that Gundlach and three other former TCW employees were awarded in a countersuit for unpaid wages.
American Century Giftrust was the only mutual fund ever created expressly as a gift (you could buy shares only for someone else), putting investor money into an irrevocable trust account, where it had to stay for at least 18 years. The lock-in let the fund ride out market swings, eliminating worries that poor short-term performance would generate withdrawals at inopportune times.
Ultimately, that strategy paid off. The fund suffered some rough short-term patches, but was consistently above average when viewed through a long-term lens.
This fall, however, American Century renamed the fund American Century All Cap Growth /quotes/zigman/274289 TWGTX +0.68% . That would have been fine, if it had removed the handcuffs from shareholders who hold it in trust; instead, they're locked in while the fund is subject to the short-term whims of new buyers flitting in or out, the exact condition Giftrust was built to avoid.
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Chuck Jaffe is a senior columnist for MarketWatch. Through syndication in newspapers, his "Your Funds" column is the most widely read feature on mutual fund... Expand
Chuck Jaffe is a senior columnist for MarketWatch. Through syndication in newspapers, his "Your Funds" column is the most widely read feature on mutual fund investing in America. He also writes a general-interest personal finance column and the Stupid Investment of the Week column. Chuck does two weekly podcasts for MarketWatch, and frequently makes guest appearances on television, and on radio shows across the country. He is the author of three personal-finance books. His latest, "Getting Started in Hiring Financial Advisors," was published in the spring of 2010 by John Wiley & Sons. Collapse
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