As talk about Enron continues, mutual fund companies have begun answering questions and defending their positions in the energy trader as the media begins to examine how the collapse affected mutual fund shareholders.
Earlier this month, BusinessWeek Online published an article on mutual funds that held a substantial amount of Enron stock called "Burned in Enron's Flameout: Mutual Funds." In his weekly radio show on KTLK-AM in Denver, senior Lipper analyst Don Cassidy was asked how much mutual fund shareholders were affected by Enron and how much they should be worried about further "hidden bombshells." Other articles about mutual funds' stake in Enron have appeared recently in SmartMoney magazine and InvestorsAlley.Com.
About 16% of Enron's stock was held in mutual funds as late as October and November, according to Cassidy. That could add up to $15 billion if funds held on to it the entire way down, but not all did, Cassidy said.
Many funds that invested in Enron are fielding questions from media sources wanting to know the degree to which they were exposed to the debacle. The BusinessWeek article highlighted Merrill Lynch's Focus Twenty Fund. The fund, which was down 70% in 2001, according to Morningstar, began selling its share of Enron stock on Sept. 30, and was completely out of it by the end of October, said Christine Walton, a spokeswoman for Merrill.
Only about 3.3% of the fund's 70% drop in 2001 was due to Enron, Walton said. But its late sale of the stock still had the firm defending itself for its actions.
"The fund has to hold 20 stocks," Walton said. "It's an aggressive growth fund and those stocks were slammed across the board last year. If [then portfolio manager James McCall] didn't hold Enron, he would have had to hold something else, and it's entirely possible that it could have been worse."
InvestorsAlley.Com, a financial news and commentary Web site geared toward investors, recently published a commentary piece on how mutual fund investors were hurt by Enron and what they can do to avoid similar situations in the future. The piece mentions Alliance Capital Management, Putnam Investment Management, Barclays Global Investors and Fidelity Investments as firms that held significant stakes in Enron, but makes a point of highlighting Janus. At one point, Janus owned about 40.9 million shares of Enron, more than 5% of the firm's stock.
The InvestorsAlley piece examined why large institutional investors like Janus bet so heavily on Enron and why they did not see the coming debacle sooner.
Guilt by Association
Many funds have been unfairly caught up in Enron's whirlwind and funds should not be blamed for fraudulent action that they had no way of knowing about, said Greg McAndrews, president of Greg McAndrews & Associates, a public relations firm specializing in financial services. Firms that are questioned should simply have a prepared answer stating that they are pursuing legal remedies and that they too were victims of Enron, just like everyone else, he said.
Janus has been receiving a lot of inquiries about its Enron holdings, mostly from the press, according to Shelly Peterson, a spokeswoman for the firm. The questions have generally been straight-forward data inquiries, and the firm's public relations department has given the data while pointing out that firm had owned Enron for long enough that it realized a tremendous amount of appreciation, which was simply offset by the collapse, Peterson said.
"I think first of all, in general, funds should be held accountable for their investments," said Russell Kinnel, an analyst at Morningstar. "That said, I think some of the stories about funds holding Enron don't have the full perspective...People have to understand that most funds had only a 2% or 3% or 4% holding of Enron, which they almost definitely have sold off. One of the advantages of mutual funds is that they are diversified."