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Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35379  
Subject: Re: Where are rates going? Date: 8/19/2001 8:51 PM
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Some mutual fund prospectuses go even futher than saying they can delay making redemptions and allow themselves the possibility of making redemptions in kind, but I've never heard of a case, likely because of the negative publiclity it would generate.

Imagine this scenario: [Fund company to an investor wanting to redeem shares.]

"Loook, pal. If you're stupid enough to want to sell at the bottom of this market, we aren't going to eat the loss, you are. Here is your 10.619 shares of Wonder Widgets, your 25.445 shares of Wacko Mfg, etc. You sell them and Have a nice day."

But, in fact, that's what fund managers, particularly bond managers need to do. I was a long time shareholder in NorthEast Investor Trust, a high-yield fund with a good track record. Like all funds, it had its up's and down's but I was content to average in and buy more shares when the NAV dropped rather than bail along with others panicky investors. But following the Asian crisis, junk was hard hit and the redemptions just kept escalating and I was faced with the prospect of being the last one holding the bag. So, I liquidated and cashed out of the half dozen other bond funds I also owned and haven't been back that way since.

If I'm going to own bonds, I want to control when the redemptions are made so I'm not buying at tops and being sold at bottoms.

In general, the recent tech crash has made me a bit cynical about whose interests are being served by mutual funds. In the old days, when the small retail investor couldn't get access to markets and information, funds were a legitimate and cost-effective portal. And that is still the case for some specialized funds, e.g., the Merger Fund [MERFX], which is a wonderful way to get exposure to M&A arb, besides being a steady performer and an excellent portfolio diversifier. [Disclaimer: I'm a shareholder.] But for the most part, I think the "average investor" is better served by learning to do her/his own investing/trading, mistakes and all, and I think what drives the fund comapies isn't concern for their sharholders in the sense that a fund company is a co-operative composed small capitalists and experienced financial managers, but mainly a vehicle for gathering assets against which fees can be accessed that served to pay outrageous salaries. The shareholder is thrown a few crumbs that they could greatly improve upon *if* they are willing to take on the work and responsibity that investing/trading admittedly is. So, I'm suspicous of their "research" and communications and their often belated and half-hearted efforts to monitor the inflows and outflows of cash.


Charlie

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