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Fund Spy

Morningstar Fund Spy

Kudos to the Directors
Many of us at Morningstar regularly criticize mutual-fund directors for their habit of rubber-stamping advisors' management contracts and fees without giving enough thought to the needs of the shareholders they're supposed to represent. But in at least one case, independent directors have performed admirably during a complicated and difficult transition.

MAP-Equity MUBFX, an excellent mid-cap fund, has been distributed by insurer MBL Life, but when MBL Life sold its asset-management business, the fund needed a new distributor. Complicating matters, MBL Life also owned part of the fund's advisor, Markston Investment Management. To their credit, the independent directors expressed a strong preference that any deal keep on board the portfolio managers who have steered the fund to outstanding performance for nearly two decades. (Lead manager Michael Mullarkey's tenure goes back to 1981.)

The directors eventually worked out an arrangement with the Mainstay fund family, and if shareholders approve next week, the fund will become Mainstay MAP-Equity. Mullarkey and one of his colleagues will remain in charge of the portfolio, having formed a new, completely independent firm--Markston International LLC--that will serve as the fund's subadvisor. The fund is closed now pending the vote, but when it reopens, it's well worth a look.

On the Green or In the Sand Trap?
When a country's economy and stock market have both been in a slump for the better part of a decade, trying to determine whether an apparent revival is "for real" can be excruciatingly difficult. That's the case with Japan right now. The government and many companies boast of instituting much-needed reforms, and the stock market has zoomed upward. But most economic indicators, such as corporate earnings, look as dismal as ever.

Some of the portfolio managers we speak with are optimistic about Japan's turnaround while others are much more skeptical. Some, like Longleaf International's LLINX Andrew McDermott, don't even try to come to a macroeconomic decision. He says the fund has a large stake in Japan only because he has heavily weighted a handful of attractive companies in that concentrated portfolio.

For managers and analysts, Japan's byzantine accounting practices and heavy-handed government interference complicates the task of evaluating corporate health. In The Wall Street Journal, Lehman Brothers analyst Robert Zielinski makes an unsettling comparison: "Investing in Japanese banks is just like investing in Internet stocks. You have to use different standards of measuring value."

Apparently that applies to the whole economy. A recent Financial Times report from Tokyo included this nugget: "The closely watched Nikkei index of golf club membership prices has rallied unexpectedly in recent weeks and is now 18 percent higher than it was at the start of the year."

Ride On, Ant Man
Jockey Chris Antley is thinking about more than just winning the Belmont Stakes next Saturday to become the first jockey in 21 years to capture horse racing's Triple Crown. He tells Bloomberg News that like so many other Americans now, he's a day trader. He even started a stock newsletter, which has evolved into a daily e-mail service called "The Ant Man Report." (I'm not kidding.)

Antley isn't the only athlete moonlighting as a financial analyst. As The Wall Street Journal recently noted, Baltimore Orioles slugger Albert Belle offers free financial advice over the Web. In one column, he recommended that beginning investors start off buying individual bonds, before progressing to bond funds, stock funds, and then "a quality blue-chip company such as Microsoft MSFT." (Take heed: The Ant Man also likes Microsoft.)

Don't laugh too hard at the athlete-advisors. Mutual-fund firms staffed with highly-trained financial experts have come up with much goofier ideas than those supplied by Antley and Belle. Templeton, for example, brought out a Vietnam fund even though Vietnam had no stock market. Kemper and Alliance, among others, created funds with vague environmental themes, only to end up with jumbled portfolios and sorry performance.

Now comes the latest "trend" offering. AIM has announced the debut of something called the AIM Dent Demographic Trends Fund, which will base its strategy on the theories of Harry Dent, Jr., author of The Great Boom Ahead and The Roaring 2000s. Although Dent won't manage the fund directly, he'll helpfully provide "macroeconomic and sector research and investment and market capitalization recommendations" to the three AIM managers making the actual stock picks.

Hmm. I doubt The Ant Man will bet on that one.

Stat du Jour
GUT. That will be Gabelli Utility Fund's ticker when it starts trading in about five weeks.