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Morningstar Fund Spy

When is a Gimmick Not a Gimmick?
Alliance Worldwide Privatization AWPAX came out in 1994 with an intriguing mandate: It would only invest in companies that were once government-owned but had subsequently become publicly traded. The idea had some inherent appeal--everyone (except diehard socialists) agrees that real people can run a business better than governments can. Peter Lynch even plugged the idea of buying newly privatized companies in his second book.

But like many other ideas for "trend" funds, this one also smacked of gimmickry. Was it really a smart idea to limit the fund to just privatized companies? Why not make it a broader foreign fund, allowing it to buy such companies if it wanted, but also other companies it liked? Moreover, one of Alliance's previous trend funds was in the process of failing miserably. Alliance had launched closed-end Alliance Global Environment AEAAX in 1990, but it had a murky strategy and put up poor returns. Eventually it open-ended and lost almost all its assets to redemptions.

Surprise! Alliance Worldwide Privatization has been a consistently impressive performer for more than five years now. In fact, it has put to shame the firm's ostensible foreign flagship, Alliance International ALIFX. The Privatization fund lands in the top quartile of the foreign-stock category for the three- and five-year periods, and it has had the same manager, Mark Breedon, since inception. The woeful Alliance International, by contrast, has churned through several managers and three wildly different strategies since the early 1990s, and its long-term returns sit in the category's bottom quartile.

So can we abandon our skepticism and proclaim, "Gimmicks are good"? No. Alliance Worldwide Privatization has succeeded for two reasons that don't usually apply to funds following a trendy theme. First, it hit upon one of the few themes that actually made economic and business sense. Second, and probably more important, its manager has followed some old-fashioned, common-sense guidelines. When choosing stocks, he pays strict attention to valuations and management--passing up some well-publicized IPOs in the process. And he doesn't trade much: The fund's annual turnover has been well below the category average--and well below Alliance International's.

That summary doesn't provide much of a blueprint for fund companies hoping to bring out successful gimmick funds of their own, but it does point to a foreign fund that would fit well in plenty of portfolios.

Jerry Maguire Calling
A colorful story in The Wall Street Journal's month-end mutual-funds section featured a new actor on the financial scene: a Harley-riding talent agent whose clients aren't movie stars or athletes, but portfolio managers. The story speculates on whether the mutual-fund industry will be the next field to see the influx of obnoxious agents getting rich by making their clients richer.

I don't think this trend will catch on--and not simply because the fund companies dislike it. Rather, it's because most portfolio managers have little in common with the baseball players of the late 1960s and early 1970s, when agents first appeared on the scene. At the time, the players were generally uneducated (most didn't even go to college), had never handled much money, and though they probably wouldn't admit it, they consequently were intimidated by wealthy, educated men wearing expensive suits. In addition, because of legal restrictions, players couldn't move freely from one employer to another. Today, athletes also need agents to help them negotiate outside deals, from local radio ads to trading-card rights to huge shoe contracts. None of these conditions apply to portfolio managers.

It's noteworthy that the deal featured in the article was unusual in many respects. John Tribolet, Alex Muromcew, and Eswar Menon worked as part of large teams, so they weren't well-known names, even in the industry. But their Nicholas-Applegate (now Pilgrim) funds had great records. Yet, based in San Diego, the trio (and a client-service exec also interested in moving) couldn't just go to the local watering hole to hear the gossip about job prospects, as they could have in Boston or New York or even Denver. For all of these reasons, they were prime candidates for an agent who could search for deals and promote their partly hidden records.

On the other side, Loomis Sayles was trying to build up its international effort as quickly as possible. But it lacked a strong record in international investing, so it probably would have had trouble attracting quality managers using the typical executive-search approach. In short, this situation was tailor-made for an agent. And he succeeded: The four teammates moved to Loomis Sayles, with--according to The Journal--a substantial boost in salary and a fat payoff for the agent. But these conditions are unlikely to be duplicated very often.

One area where agents could come in handy, however, would be developing outside merchandising opportunities. Portfolio managers and other industry leaders thus could boost their visibility and augment their already-large salaries. For example, judging from the reverence exhibited on's Vanguard Diehards conversation board, a Jack Bogle action figure would sell briskly.

Stat du Jour
Five percentage points. The margin by which Alliance Worldwide Privatization's annualized five-year return beats Alliance International's.