Tim Middleton

Mutual Funds7/10/2007 12:01 AM ET

Giuliani's portfolio is full of dogs

The Republican presidential hopeful and former New York City mayor has way too many dogs in his portfolio. He's rich, but he's not making his money work for him.

By Tim Middleton

If Rudolph Giuliani does succeed in his bid for the presidency, one of his first tasks will be to pick the advisers who will help him run the country.

Let's hope the Republican presidential hopeful would do a better job picking that staff than he did picking his financial advisers.

Two prestigious firms, Merrill Lynch and Bessemer Trust, have foisted a wretched set of mutual funds on the most public hero of 9/11. His holdings for 2006 are reported in a filing with federal election officials.

The document, which accounts for holdings in broad ranges rather than specific dollar amounts, shows investments held by the former New York City mayor and his wife, the former Judith Nathan, worth between $12.7 million and $44.5 million. His income last year was $16.8 million, two-thirds of that from speaking fees. If he does become president, he'll take a sizable pay cut, as the country's chief executive receives a salary of $400,000.

Giuliani's portfolio is designed to produce income and protect his wealth, not enhance it. Three-quarters of his assets are in cash, taxable and tax-free bonds, and balanced and bond mutual funds. His equity holdings could be as little as $3.1 million or as much as $9.9 million.

They are spread across the usual choices, from large to small to international. They include modest positions in a few common stocks and decent mutual funds from Fidelity Investments and Vanguard Group.

But a large fraction of Giuliani's assets are in the worst funds he could pick.

A family of laggards

Among Giuliani's largest accounts are several at Bessemer Trust, a white-shoe money manager that traces its roots to the family office of a founder of Carnegie Steel. It manages $50 billion on behalf of 1,800 families, most of that in private accounts.

For customers who can't meet its minimums, Bessemer offers its own friends-and-family group of mutual funds under the Old Westbury brand. Giuliani owns all seven of them.

The candidate has more than $1 million in each of two Old Westbury funds, Municipal Bond Fund (OWMBX) and Large Cap Equity (OWLCX). His wife has positions in each of those funds of between $250,001 and $500,000.

The first of these funds ranks in the 55th percentile in Morningstar's national municipal bond category. It lags its benchmark by about 1 percentage point annually, and considering that total returns are in the range of 3.5%, that's a lot. The latter fund tends to lag the S&P 500 Index ($INX) by more than 3 percentage points a year, similarly condemning it to mediocrity.

None of Old Westbury's funds has ranked higher than the 30th percentile over the past one, three, five and 10 years, as of May 31. Old Westbury International (OWEIX), the largest of these funds with $2.02 billion in assets, hasn't ranked higher than 62nd. Giuliani has more than $500,000 in that fund, and his wife more than $50,000.

Bessemer noted that it doesn't market its funds to anyone but its clients, and otherwise didn't comment.

A spokeswoman for Giuliani's campaign likewise had no comment.

Poor advice

In a Merrill Lynch IRA -- for which Merrill is getting paid to pick the funds -- Giuliani reported positions of between $1,001 and $50,000 in AIM Charter Fund B (BCHTX), AllianceBernstein Large Cap Growth B (APGBX) and AllianceBernstein Growth & Income B (CBBDX).

The AIM fund has a miserable long-term record, although in the past couple of years it has performed above average. The AllianceBernstein funds are dogs. The large-cap fund hasn't ranked higher than the 74th percentile. The Growth & Income fund ranks in the 91st percentile over the past three years.

Some of Giuliani's reported assets were in accounts in the name of his former wife, Donna Hanover, in which he retained an interest. The funds picked for those accounts were good.

One was a Merrill Lynch account in which the candidate reported an interest in funds jointly owned with Hanover. Less than $15,000 was in each of two Blackrock funds, BlackRock Balanced Cap Fund (MDCPX), a good balanced fund, and BlackRock Municipal National Bond Fund (MDNLX), an excellent long-term tax-free bond portfolio.

Merrill Lynch declined to comment.

His and hers

Another account, controlled only by Hanover, included $15,001 to $50,000 in Vanguard Growth & Income (VQNPX), a below-par stock fund, and $1,001 to $15,000 in Vanguard Total Stock Market Index (VTSMX), a much better equity fund.

Giuliani did report owning, in his own name, an IRA account holding $500,001 to $1 million in Vanguard Wellington Fund (VWELX), an outstanding stock-and-bond fund.

In his 401(k) with Giuliani Partners, the candidate reports owning $15,001 to $50,000 of Fidelity Freedom 2010 (FFFCX), an excellent life-cycle fund intended for people who plan to retire in 2014 or before.

In his 457 deferred compensation plan with New York City, he owned $50,001 to $100,000 worth of socially responsible mutual funds.

Other holdings included $50,001 to $100,000 in Giuliani's wife's name in Mutual of America Mid-Term Bond Fund (no ticker), an insurance company separate account. Insurance accounts are common in 403(b) self-directed pension plans; this one is available in my wife's plan.

The fund, according to online documentation for my wife's account, has gained an average of 2.48% annually in the five years ended June 30. That is lousy -- the much-followed Lehman US Aggregate Bond Index gained 4.73% in the same period -- but most 403(b) plan options are.

Assets of this magnitude could potentially supply a very handsome stream of income, and Giuliani is probably getting that. His filing indicates income from his investments in the range of $300,003 to $3,358,560. Most of the income comes from cash-management accounts at JP Morgan Chase and Citibank.

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That's a yield on his total portfolio of 2.36% at the bottom of the range and 7.55% at the top. The median would be 4.96%, which would imply income of $1.4 million if his actual investments are worth the middle of their range.

These numbers are speculative; only Giuliani knows if his bankers are giving him better service than his brokers. And judging from his portfolio, this is a topic to which he has not turned his formidable mind.

Fortunately, we don't pay presidents to pick mutual funds. Others of us can handle that.

At the time of publication, Tim Middleton didn't own any securities mentioned in this article.

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