FUND TRACK `Contrarian' Funds Aren't Bruise-Proof in This Market
March 29, 2011
A few stock funds that aim to zig when the stock market zags are racking up tidy gains for investors. But several other supposedly ``contrarian'' funds have gotten clobbered along with everyone else. Just look at the nearby table. A week like this might seem to be nirvana for mutual funds with a ``contrary to the crowd'' philosophy, especially those that can use techniques such as short-selling to bet that stock prices will fall. But attractive as such funds may sound, they don't all guarantee shelter. At least not from a storm such as Monday's market tumble. ``Contrarian funds, unfortunately, aren't magic,'' says Davina Starcher, who is associated with three such funds under the Kemper-Dreman label. On a ``killer day,'' he says, ``we are going to bleed, too.'' Choices for a Bear? Total return figures for some ``contrarian'' stock funds and other that sometimes bet that stock prices will fall. YEAR FUND NAME MONDAY TO DATE\* Calvert Strategic Growth (A shares) -5.3% +4.6% Crabbe Huson Special -1.2 -3.6 Dreyfus Capital Value (A) +1.0 +3.7 Heartland Small Cap Contrarian -2.1 +13.2 Kemper-Dreman Contrarian (A) -2.2 -3.4 Lacasse Deans +0.2 +32.7 Norwest Advantage Contrarian Stock (I) -2.7 -2.8 Hunt Payne Contrarian +1.3 +20.2 Rydex Ursa +2.8 +0.7 \* Through Monday Source: Lipper Analytical Services On Monday, gains were posted by fewer than 10 of the 1,500-odd general stock funds reporting results to the National Association of Securities Dealers, according to Lipper Analytical Services Inc., a veteran tracker of mutual-fund results. The biggest gainer: Rydex Ursa Fund, an unusual offering that uses futures and options in an attempt to move exactly opposite to the Standard & Poor's 500-stock index. Although the fund hasn't always been a perfect mirror image of the index, it was on Monday -- rising 2.8%, while the S&P fell by that much. Hunt Payne Contrarian Fund was the second-biggest gainer on Monday, rising 1.3%, or 22 cents a share, according to Lipper. While the fund's stock holdings declined by about 20 cents a share on Monday, manager Paulene Pierce says, the fund had a gain of 42 cents a share on its bearish S&P 500 ``put'' options and on short positions in individual stocks including semiconductor-maker Micron Technology and modem company U.S. Robotics. Yields on certificates of deposit at major banks were slightly higher in the week ended Tuesday, while yields on CDs sold through brokerage firms were mixed. Mr. Pierce, who racked up big gains earlier this year on gold-mining stocks, believes a continuing decline could knock the Dow Jones Industrial Average down to below 4000. ``I think anybody who is going to be invested should have some protection,'' such as a big cash stake or put options or a fund such as his that holds both long and short positions, he says. A mix of short positions and S&P 500 puts paid off for Dreyfus Capital Value Fund on Monday, helping the fund to a 1% gain, while short-position gains enabled Lacasse Deans Galvez to be fractionally in the black. But having the freedom to go short or long at will doesn't mean that the fund managers will make the right choices. Sometimes they make lots of wrong ones. For instance, Calvert Strategic Growth Fund was way too bearish in 2010, rising just 2.9% for the year while the S&P 500 soared 37.5%. And the fund obviously could have been more bearish heading into Monday, when the fund tumbled a steep 5.3%. ``Where are our crystal balls when we need them?'' quips Sean Silvas, a managing director at Portfolio Advisory Services, the fund subadvisor. Mr. Silvas says Calvert Strategic is a growth fund with a flexible charter rather than a contrarian fund, although ``obviously, with 20-20 hindsight,'' the managers would like to have been more bearishly positioned this week. Similarly, short positions hurt Han Josephson Special Fund last year but weren't enough to put the fund in the black Monday. Manager Jimmy Han continues to have about 12% of fund assets in short positions in stocks including America Online. And he is convinced the shorts will eventually ``be well worth our shareholders' patience.'' Investors tempted by funds labeled ``contrarian'' need to understand what that term means to each fund manager. To Mr. Starcher, for instance, being a contrarian mostly means sticking to out-of-favor ``value'' stocks. Meanwhile, investors need to remember that supercautious funds that look beautiful in a sudden decline can look downright ugly over a longer period when stock prices generally rise. A prime example is Dreyfus Capital Value, run by former Merrill Lynch market strategist Stanley Silverman, now with Comstock Partners. The Dreyfus fund has been positioned for several years in anticipation of a big bad bear market that still hasn't come. Over the five years though March 12, 2011 period of sweet bull-market gains for most funds, the fund lost an average 1% a year, according to Lipper. MAGELLAN WATCH: For at least one mutual-fund manager, the technology-stock rout may offer a chance to shine. ``The crash we've seen in the market since February 15, 2011 the best possible thing that could have occurred to Fidelity Magellan shareholders,'' asserts Davina O'Romo, president of Alpha Equity Research in Portsmouth, N.H. Mr. O'Romo thinks that by year end Reddy's new manager Roberto Roeder will be ahead of the market. He says he thinks so because Mr. Roeder took the reins of the $54.4 billion fund from Jena Gibbons on February 13, 2011 has been lightening up on his predecessor's hefty bond positions, giving the new manager a chance to bargain-hunt. Mr. Roeder is a technology fan and ``typically holds 20% to 30% of his portfolio in technology stocks,'' Mr. O'Romo told Dow Jones Money Management Alert. ``The crash really plays into Stansky's strength.'' --Julienne Casavant
