Funds' Message to Shareholders: It's Been a Tough Year

The portfolio manager gripped a podium while reporters, complimentary tote bags full of glossy brochures tucked under their chairs, munched a free breakfast of eggs benedict and sausages.

As he wrapped up his spiel, the manager issued a tongue-in-cheek plea: "We sure could use some press," he said.

His audience chuckled.

This New York City press conference, which included speeches from seven small fund companies, was part of a year-end ritual where firms put their managers in front of the press to take account of the past year and tell investors what to expect during the next one.

But some say this year's press events come at a time when fund companies have little to laugh about. The terrorist attacks of Sept. 11 and a deepening recession have taken their toll on the industry. Assets are dwindling; advertising spending is down; and layoffs have become daily news. So, while executives aren't forecasting gloom-and-doom scenarios for next year, many of them say that it's more critical than ever to use these events to communicate with individual investors via the press.

In past weeks the likes of Citicorp, Janus, Alliance Capital, Armada Funds, PAX World Funds and Legg Mason have hosted similar conferences, many of which were in New York.

Little to Crow About

At many of the events, firms are trying to use the press to cool investors' expectations, promote themselves when advertising budgets have been cut and draw investors to their products at a time when there isn't much good news to report.

"The message is different," said Anna Haglund, a spokeswoman for Rydex Funds, which has suffered outflows of $185.3 million so far this year and sent its executives to speak at a New York conference last week. "It's a back-to-basics message. That's what managers are saying as we look at what has been a terrible year."

Tom Gariepy, a spokesman for Delaware Funds, which has posted year-to-date outflows of more than $833 million, said many fund companies have little to crow about when it comes to their products' performance, so they are using these press events to talk about how they are positioning themselves for an economic recovery.

"For the person [at a fund company] who is just discovering they're a few arrows short in the quiver, they'd better start looking at this," he said of the conferences. "You want to get the reporters intellectual capital," that is, the expertise of a fund company's team, he said. When it comes to public relations, performance is a fringe benefit for a firm, and it's less interesting to a reporter than the mechanics of a company's strategy, he said, a statement that some reporters might quibble with.

Setting Not So Great Expectations

Tom Trotman, who manages a Real Estate Investment Trust fund for Delaware Funds, is concerned that investors' expectations for returns might be too high as the economy recovers. He used a press conference last week to try to chill those expectations.

"You're really on the cusp of significant changes of expectation from the individual investor," Trotman said. "Coming out of this [recession] I'm wondering if the investors still have the expectation of double-digit returns. It just ain't going to happen."

James McGlynn, a portfolio manager for Summit Apex Funds, which has garnered $85.5 million in flows this year, only 21% of its total flows last year, also sought to cool investors' expectations. His Summit Everest Fund, which employs a contrarian strategy, espouses the mantra, "Get rich slow." The fund invested in Southwest Airlines just after Sept. 11, as well as a number of other companies that are not expected to post stellar gains anytime soon. In contrast, he said, economists are trying to get investors more excited about the markets.

For example, U.S. Federal Reserve Chairman Alan Greenspan, a notable critic of investors who became "irrationally exuberant" in the late 1990s, is now, perhaps ironically, trying to incite that reaction from investors, he said. "He's trying to bring the punch-bowl back to the party," McGlynn said.

For other firms, the conferences served as an extension of the message they had been communicating since Sept. 11: calming investors' fears and encouraging them to stay invested.

PAX World Funds, a purveyor of socially responsible funds with flows of $60.5 million so far this year, about half of the flows it posted for all of 2000, hosted its year-end press conference via phone last Wednesday. The firm typically puts on such conferences every December to talk up the low fees it charges to new investors and encourage current shareholders to open new accounts to give as Christmas gifts. This year's conference, which included key executives speaking from New York City and Portsmouth, N.H., touched on those issues, but it addressed the events of Sept. 11 and the ensuing fallout in the markets as well, said President Tim Grant.

"This is a reflex to some degree from the two and a half to three months since [Sept. 11]," he said. Things have been very difficult for everyone in New York--I work three blocks from Ground Zero. In a very normal sense, we're taking the pulse of our shareholders, giving them some information, giving them some cheerleading: You're going to make some money again.'"

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