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If Willy Loman had sold mutual funds, he would have died wearing a better suit.
When Arthur Miller's "Death of a Salesman" premiered in 1949, there were more than 60 mutual funds -- at least that's how many of them are still around.
Today there are an astonishing 23,761 funds in the Morningstar database, and an amazing 6,756 of them have sprung up in just the past three years.
Three-quarters of this jumbled heap are different share classes of the same underlying portfolios. That is, they are marketing gimmicks, usually designed to make load funds look like no-load funds.
A large fraction of the balance represents the triumph of salesmanship over investing. What do you make of oxymoronic Utopia Core Conservative (UTCCX) or Autopilot Managed Growth (AUTOX)? How would you like a big helping of SPDR S&P Homebuilders (XHB, news, msgs), which came out at the end of January 2006 and fell directly into the Slough of Despond.
How about the tribe of nearly 20 new exchange-traded funds called HealthShares? Here you can choose between HealthShares Metabolic-Endocrine Disorders (HHM, news, msgs), which as of April 25 had 9.4% of assets in NicOx SA (NICXF, news, msgs), a French developer of nitric-oxide-donating drugs, and HealthShares Respiratory/Pulmonary (HHR, news, msgs) which only had 7% in NicOx.
But for sheer marketing chutzpah, I bow my head to two other new funds, and one group of funds, that represent Olympian achievement in packaging. Critical Math Fund (CMFCX) is run by a nonmathematician and it shows. Ancora Homeland Security Fund C (ANHCX) doesn't provide much of the financial sort.
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And the Federated Target ETF Funds are simply breathtaking. They charge a bundle for something you can get for free -- from Federated.
And there they are, the three worst investment ideas of 2007.
This is Critical Math?
This is more like Spinal Tap.The Web site for Critical Math Fund is UnusualFund.com. "You can't say you haven't been warned," quips Roy Weitz, publisher of FundAlarm.com. The math fund's site depicts the portfolio this way: "Systems so responsive that, depending on the market environment, we can be invested anywhere from 0% to 100% in either equities or money market instruments."
That sounds like market timing, but founder and lead manager Lewis Arno insists he is not a market timer. "We want to minimize downside risk without frequent trading," he says.
His goal has not been realized, on either front. The fund is down 2.6% this year, as of April 25, or 8.5 percentage points behind the market, and down 4.3% in the past 12 months. In both instances, that is worse than all but 1% of similar funds, according to Morningstar.
In its annual report dated Jan. 31, the fund reports turnover of 694%.
Arno, a former insurance salesman who describes himself now as a financial planner, acknowledges he is not a mathematician. Nonetheless, he employs "proprietary" computer models to decide what to own and when. The ones he started with have let him down, he admits, but says he's got a bunch of new ones that are much better.
"Going forward from here, we expect to see our objective and our strategy -- we expect it to happen -- our strategy will be roughly equal to the market on the upside, but to be substantially ahead in down markets," he says.
But even this fund's very recent past is discouraging. As of Jan. 31, Critical Math had 57% of assets in Rydex Russell 2000 Advantage H (RYMKX), which has the goal of delivering 1.5 times the return of this small-capitalization stock index. It is up 8.3% this year.
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