Not quite 3-1/2 years after acquiring the $2 billion proprietary open-end fund group of famed money manager Dr. Martin E. Zweig of Zweig Consulting of New York, Phoenix Investment Partners of Hartford, Conn., the parent company to the seven-fund group, has decided to pull the plug and replace the managers on five of the funds. Two small funds won't be reassigned, but will instead be liquidated. Those ousted include Zweig, who had been serving as president of Phoenix-Zweig Advisors as well as its asset-allocation strategist.
In the announcement on June 21, Phoenix disclosed that the fund group's board of directors had voted to replace the management of five of the seven funds in an effort to "enhance the growth prospects" of the funds. Even though assets in the funds have dwindled over the past three years, it is unusual for a fund company to replace the management of an entire fund group. Zweig had not returned a call seeking comment by press time.
Zweig and a handful of managers are being replaced as of July 1 by other managers within Phoenix's stable of 11 independent asset management firms. Consequently, each fund will lose the "Zweig" moniker and be appropriately re-branded to its new Phoenix management company adviser.
Under Phoenix's multi-manager model, each of Phoenix's management companies operates as a subsidiary company. Phoenix provides centralized marketing and distribution services for each, while independent managers working from their original locations continue to focus on their investment management style or niche. Phoenix is itself an indirect wholly owned subsidiary of The Phoenix Cos.
"Seven positions are being eliminated, which includes five investment managers and two technology people," said Sharon Bray, a Phoenix spokeswoman. Phoenix's New York-based private client group, which includes a sales desk and internal wholesalers, will remain untouched, she added.
Two successful closed-end funds that Zweig and a separate team of managers advise, The Zweig Fund and The Zweig Total Return Fund, are also under Phoenix's control but will not be affected by the changes. Interestingly, Zweig's similar approach to investing has worked much better in the closed-end realm, where Zweig has many loyal investors, Bray said.
The Road to Splitsville
The decision to reassign the five open-end funds to other managers was made because of the funds' shrinking assets, which made them very difficult to sell. "The funds have been declining in assets, and investor demand simply hasn't been there," Bray said.
The group's total assets, excluding a money fund, had topped $2.2 billion at the end of 1998, when Phoenix first announced its intended acquisition. Those assets have dwindled to a mere $585 million as of April 30, 2002, according to Financial Research Corp. of Boston. Since 1996, the anemic fund group had lost nearly 75% of its assets. The smallest fund in the group, according to Morningstar of Chicago, is the Phoenix-Zweig Growth & Income Fund, with only $6 million in assets. The second-smallest fund, according to Morningstar, is the Phoenix-Zweig Government Securities Fund, with only $27 million in assets under management.
While Phoenix still strongly believes in its strategic multi-manager model, with the Phoenix-Zweig funds the handwriting was on the wall. "A particular advantage of our multi-manager model is that it allows us to assign funds when appropriate to new managers to enhance growth prospects," Bray said. Having 11 money managers with diversified styles and products helps maintain balance, which is especially important during volatile markets, as each cycles in and out of style, she said.
The funds were being managed under Zweig's well-known risk-adverse, tactical asset allocation model that evaluates an array of economic indicators, market sentiments and trends. Allocations between cash and equities and/or fixed-income securities were then made based upon those evaluations.
The largest of the open-end funds, the $230 million Phoenix-Zweig Managed Assets Fund, is being handed off to Oakhurst Asset Managers of Scott's Valley, Calif., which will also manage the $142 million Phoenix-Zweig Strategy Fund.
Oakhurst was founded as a Phoenix subsidiary in the summer of 1997 to accommodate the investing talents of Steve Colton and Dong Zhang, two accomplished value managers who Phoenix had wooed over from American Century Investments in Kansas City, Mo.
At that time, Phoenix had been searching for a value-style investment firm to acquire to complement its existing fund offerings. But, disappointed at not finding a likely candidate, it hired away the two managers and helped them set up a new firm, Bray said.
The $130 million Phoenix-Zweig Appreciation Fund will be managed by Hollister Investment Management of Sarasota, Fla. Hollister, a core value shop, was also created and not bought by Phoenix in 1997. The firm is run by former Dreman Value Advisors' Chief Investment Officer and Portfolio Manager Chris Bertelsen.
The youngest fund in the group, the $45 million Phoenix-Euclid Market Neutral Fund, which is named for Euclid Advisors, the wholly-owned subsidiary of Zweig Consulting, will now be managed by Capital West Asset Management of Denver. Capital West was founded in 1999 and acquired by Phoenix in 2001. The firm specializes in large and small equity investing.
The group's only money market fund, the $215 million Phoenix-Zweig Government Cash Fund, will be managed by fixed-income managers Goodwin Capital Advisers of Hartford Conn., whose managers had previously served as Phoenix's internal bond managers.
Two of the group's smallest funds, the Phoenix-Zweig Government Securities Fund and the Phoenix-Zweig Growth & Income Fund, will be shut down July 31.