Those who fail to learn from the mistakes of their predecessors are doomed to repeat them. The same is true for mutual fund managers.
In keeping with the tradition of year-end obituaries for people, let’s take a look at the dearly departed mutual funds that we’re supposed to learn from this year.
While most of the funds failed due to taking unnecessary risks or making fatal marketing errors, some of them actually possessed enough merit to deserve your capital, at least up until recently.
Here are three mutual funds that met their maker in 2014…
Lest We Forget
Speaking of the departed, Oceanstone’s former manager James Wang recently shuffled off this mortal coil, resulting in the discontinuation on his fund.
Known for his impressive track record and not much else, Wang didn’t give interviews or even take phone calls.
Yet Oceanstone climbed and climbed despite its mysterious manager. A mere $10,000 investment at the fund’s beginning in 2006 would have netted you nearly 800% growth back when the fund closed this past August.
In the slow, steady, and safe S&P 500 index, that same $10k investment would have only grown into about $16,500 in that same time period.
As Wang left no clue behind on his management style or technique, the fund understandably crashed following his abrupt death — especially given that he was also the treasurer, secretary, and chief compliance officer.
Oceanstone was recognized for its success in its lifetime, winning the Lipper Fund Award of 2012 for top three-year performance by a multi-cap value fund.
As people tend to idealize when presented with death and mystery, the opposite might be necessary. In 2009, Oceanstone jumped 264%, which could have meant that Wang truly was good or that he was just lucky.
If he survived and Oceanstone continued, who’s to say it wouldn’t plummet back to the ground floor?
The Biggest Loser
Remember the “Jubak Picks” column in MSN Money? Riding its massive success, Jim Jubak started his own website, JubakAM.com, to better broadcast his stock picks.
Shortly after that, he proved that having a great media reputation doesn’t qualify you to manage your own mutual fund.
His fund, created in 2009, was dubbed Jubak Global Equity, and he hoped to ride the hype of his column’s following. While promoting his fund, he promised that he could “rebuild your wealth and safeguard your future” in the wake of the 2008 financial crisis.
Unfortunately, his fund’s numbers fell short. Jubak Global Equity spent the duration of its lifetime in the bottom 1% of its peer group, losing more than 4% annualized over its final three years.
Shortly after Jubak closed Global Equity for good, he posted this message on his website: “As a thank you to everyone who invested in the fund, I have extended their free subscriptions to my JubakAM.com investment newsletter.”
No need to thank him.
My computer’s spell check function wanted to correct Jubak’s website address to “garbageman.” I wouldn’t have made the connection.
Out of Time
The Virginia Equity fund was conceived in January of this year on a noble yet anachronistic principle. The fund’s manager planned to invest at least 80% of the assets in securities for companies based in Virginia or with a significant impact on the state’s economy.
Other funds based in Oklahoma and Texas have attempted to run with a fund like this before, but they shut down back in 2010 after running for less than a year. Like the Virginia Equity fund, they too were founded on the outdated notion that focusing on your home state can grant you some sort of investing edge.
While the companies targeted for investment were local, they still play their part in the global marketplace and are generally more affected by events that originate abroad than by those that run their course domestically.
The most successful instance of this type of mutual fund is based in Nashville and has currently only managed to grow 0.1% after forming over a year ago.
Sadly, that number is better than what the Virginia Equity fund could produce. Last summer, Virginia Equity’s investment advisor, who was also the fund’s only shareholder, declared that he was shutting the fund down before operations even began, citing a lack of interest and hopefully putting his bygone ideals to rest for good.
What Did We Learn?
2014 was a time for unanticipated (and some anticipated) death. Will the 2015 mutual fund scene play out any differently? Of course it will.
Have we seen the last of would-be mutual fund managers making the same mistakes? Not likely.
Count on seeing different funds behaving in similar ways a few years down the road at the latest.
