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Fund Times

Fund Times: Openings, Closings, & Manager Changes

Gabelli, Janus, Nvest, John Hancock, E*Trade, and others.

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Enterprise Group of Funds has recruited a well-known value manager to run a fund focusing on corporate combinations, while Janus Mercury (JAMRX) manager Warren Lammert bowed out of a subadvisory gig.

Fund manager Mario Gabelli's deep-value investing style is renowned for leading him into companies with stock prices so low that somebody ends up buying them out. Now Gabelli will run a fund whose stated purpose is to find potential takeover targets. Gabelli, who runs a passel of funds through his own Gabelli Asset Management (GBL) firm, will run the recently available Enterprise Mergers and Acquisitions fund. Gabelli will use a third of the new fund's assets to pick companies of all sizes that he thinks have a chance of being snapped up by acquirers in the next year to a year-and-a-half. He will play the risk-arbitrage game with the rest of the portfolio's assets. This means Gabelli will buy the stock of merger targets and even short the shares of their acquirers in an effort to take advantage of the difference between the price of a buyout candidate and the price of the deal on closing day. 

Gabelli, who typically looks for companies trading below what a private buyer would pay to take them over, has proven adept at finding tomorrow's takeover targets. In 2000 alone the takeovers of General Cigar, Pioneer Group, and Celestial Seasonings all boosted the returns of another fund Gabelli steers for Enterprise, Enterprise Small Company Value (ENSPX). That fund's five-year returns are also better than 84% of its category rivals. Gabelli also is an experienced arbitrageur, having skillfully employed risk arbitrage for years in his Gabelli ABC (GABCX). Still, this fund could be a little more speculative than Gabelli's other offerings, because its stated goal will be to find takeover targets. It also is expensive. Class A shares carry a 4.75% load and charge 1.95% of assets annually. Also, watch out if you don't like paying capital-gains taxes. Gabelli estimates he will turn the portfolio over one and a half times per year or more, which is sure to lead to taxable capital-gains distributions. Consequently, this fund may be better off in a tax-deferred account. 

This month Alliance Capital management will roll out four new value funds borne of its $3.5 billion acquisition last year of investment manager Sanford C. Bernstein. Managers from Bernstein, which is now a unit of Alliance, will run AllianceBernstein Value, AllianceBernstein Small Cap Value, AllianceBernstein International Value, and AllianceBernstein Global Value. The value fund will build a portfolio of about 125 large companies whose stocks look cheap compared with their earnings prospects. Small Cap Value will invest in 60 to 90 companies whose market capitalizations range in size from $100 million to $10 billion. Global Value will hold between 150 and 250 stocks from more than 40 countries, including the United States, while International Value will be a more focused fund of between 50 and 75 stocks from developed and emerging economies outside of the U.S. The funds will be sold through brokers and advisors, so they will carry loads.

The John Hancock family of funds might feel like it has arrived at the party just in time to clean up the mess. The Boston-based firm last week introduced the John Hancock Biotechnology Fund. The fund arrives just after a year in which biotechnology and health-sector funds dominated; more recently, however, they have fallen off their pinnacle. John Hancock knows, and many investors should realize, that the biotechnology sector has tremendous potential but is likely to see many ups and downs before it realizes that promise. This fund will be concentrated, because it can put more than 5% of its assets in a single security and 15% of its money in privately held companies. The firm deserves kudos, though, for promising to close the fund, which will invest in domestic and foreign biotech stocks of all sizes, to new investors once assets reach $250 million. Many players in the biotech realm are tiny upstarts, and it pays to keep a fund small enough to get in and out of them without affecting the price too much. Linda Miller, who has led the team running John Hancock Health Sciences (JHGRX) for the last five years, will be the lead portfolio manager for the biotech fund. The Health Sciences fund has returned, on average, 13.5% over the last five years, but it trailed 62% of its peers during that time. 

A new fund will try to make exchange-traded funds more attractive to investors who like to dollar-cost average, or put a little bit of money into their portfolios each month. Until now, there has been no way for people who prefer systematic investing to invest in ETFs--which are essentially index mutual funds that trade like stocks--without paying commissions on each transaction. Everest Funds Management of Omaha, Neb., hopes to remedy this with its new Everest 3 Fund. The offering is a fund of exchange-traded funds. It lets investors spread their money across three ETFs--Qubes (QQQ), which track the Nasdaq 100; Diamonds (DIA), which track the Dow Jones Industrial Average; and SPDRs (SPDR), which track the S&P 500--in one swoop. Like a traditional open-end fund, it doesn't charge commissions on additional investments. However, Everest 3 has a steep minimum investment of $10,000. It also charges an annual fee of 0.5% of assets in addition to the expenses of the underlying ETFs, and could generate taxable capital gains as the fund's advisor shifts money around the three ETFs.

Online broker E*Trade (EGRP) plans to roll out a more traditional fund of funds. The E*Trade Asset Allocation Fund will spread an investors money across five existing E*Trade index funds--E*Trade S&P 500 Index (ETSPX), Russell 2000 Index (ETRUX), International Index (ETINX), Bond Index (M)$-bbga, and Premier Money Market. The fund will strive for a conservative mix, keeping 55% of assets in the stock funds, 43% in the bond offering, and 2% in the money market. The fund's target allocation among the stock funds is about 33% in the S&P 500, 7% in the Russell 2000 small cap index, and 15% in the international fund. Investors need Internet access to get in and will pay a 0.5% annual expense ratio plus the fees of the underlying funds, which range from 0.32% to 0.65% of assets. 

A few funds with offbeat ideas died this week. Chapman Capital Management liquidated its DEM Index Fund, which invested in publicly traded, minority-controlled companies, or what it called Domestic Emerging Markets, according to SEC filings. In about two years of existence, the fund failed to attract enough investors to make it viable. Manager Nathan Chapman's strategy of investing in Domestic Emerging Markets lives on, though, in his DEM Equity fund (DEMEX) which returned 114% in 1999, but has fallen with the rest of the market since then. 

Privateer Asset Management also has closed its Allied Owners Action Fund, which it had hoped to use as a vehicle to prod troubled small public companies into turnarounds, according to the firm's Web site. The fund also did not attract enough assets, but manager Aaron Brown hopes to reopen the fund or one like it someday. The fund's accompanying shareholder-activist Website,, will continue to operate. is shrinking as alarmingly as the rain forests in the real jungles of South America, according to regulatory filings. Earlier this year the young, Web-based fund company closed its Market Leaders and Pure Play Internet funds, which together did not attract more than $700,000 in assets, according to Morningstar's database. StockJungle made quite a splash in late 1999 with its free S&P 500 index fund and its StockJungle Community Intelligence Fund (SJCIX), which uses its chat rooms to collect investment ideas and then plugs them into a computer-powered stock-picking model. Since then it has closed three of its original four funds. It still has the Community Intelligence fund, but the fund has just $2 million in assets and has lost more than 40% of its value over the last 12 months. 

Manager Changes
The constellations keep changing at Nvest Star Advisors Fund  (NEFSX). The multimanager fund that has seen multiple managers come and go over the last few years recently said goodbye to another high-profile stock-picker. Warren Lammert, manager of Janus Mercury, and Nvest parted ways amicably this week due to "divergence of business interests," spokespeople for both Janus Capital and Nvest said. Nvest has tapped Loomis Sayles' Christopher Ely to replace Lammert as the manager for the mid-cap growth portion of the Star Advisors fund, which totals about $300 million of the $1.5 billion million in assets in all the fund's share classes. Ely currently works on Loomis Sayles Aggressive Growth (LAGRX), Global Technology (M)$-dicd, and Small Cap Growth (LCGRX) funds. Star Advisors has gone through at least seven manager changes since 1997, according to Morningstar's database. Most recently it replaced former Oakmark Fund (OAKMX) manager Robert Sanborn with Oakmark comanager Kevin Grant. Losing talent may be the price Nvest pays for trying to corral and keep the talents of four or more different investment firms working on this fund. Perhaps that will change now, though, because with the latest change, all of Star Advisors' managers now come from Nvest affiliates--Loomis Sayles, which officially took over Star Advisors' mid-cap duties Thursday and also runs the small-cap value part of the fund; Harris Associates; and Kobrick Funds.

It's not even a year old, but it's already got a new name. Munder Capital Management has rechristened its Munder Growth Opportunities  (MGOYX) fund as the Munder MidCap Select Fund. 

Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.