Fund Times

Fund Times: Tough Times Force Wasatch Layoffs

Katie Rushkewicz Reichart, CFA

Wasatch Advisors announced on Oct. 24 the departure of two portfolio managers. The firm's assets under management have been cut in half over the past 18 months as the market has unraveled, forcing personnel cutbacks. Laura Hoffman, comanager of struggling  Wasatch International Growth (WAIGX) since 2005, has departed, leaving Roger Edgley as sole manager of the $195 million fund. The foreign small-mid growth fund has fallen hard in the market downturn, losing nearly 60% in the year to date through Oct. 29, and its long-term record also trails many of its peers. Edgley has potential to turn the fund around, though. His consistent approach has produced a few good years of performance at his other charge, Wasatch International Opportunities (WAIOX), and he had a solid record as manager of the Columbia Acorn funds.

Neal Dihora, comanager of the $144 million  Wasatch Ultra Growth (WAMCX) since January 2006, has also left. Ajay Krishnan, who started at Wasatch as an analyst in 1994 and became comanager of this fund in 2000, will assume full responsibility. The volatile fund has been one of the worst performers in the small-growth category this year, but it could serve investors well over the long haul.

The departures shouldn't cause too much disruption at these funds, as the incumbent managers have already been on board for awhile. However, cutbacks could become an alarming industrywide problem as redemptions reach an all-time high and fund companies are forced to scale back their resources.

RiverSource's Changing of the Guard
RiverSource has announced new management for six funds previously run by Nick Thakore and Robert Ewing, who recently left for Putnam. To fill their shoes, RiverSource will tap into new manager talent from its acquisition of J. & W. Seligman & Co. in July 2008. Erik Voss, who currently runs  Seligman Capital SCFIX,  Seligman Common Stock SCSFX,  Seligman Growth SGRFX, and Seligman Growth & Income SINFX, will take over  RiverSource Growth INIDX. Voss has been at Seligman only since 2006 and does not yet have a proven record at his charges. However, he successfully ran Wells Fargo Advantage Endeavor Select (STAEX) for five years.

Richard Parower will take control of RiverSource Global Technology AXIAX. Since 2002, Parower has amassed a decent track record as lead manager of  Seligman Global Tech (SHGTX), and he also assists at the fund's sibling,  Seligman Communications & Information (SLMCX). Both funds have been near the top of the technology category over the last few years and have outperformed RiverSource Global Technology.

RiverSource's Contrarian Equity Team will assume responsibility for RiverSource Large Cap Value ALVAX and the equity portion of  RiverSource Balanced INMUX. (The fixed-income management will remain unchanged.) The experienced team, headed up by Warren Spitz since 2000, takes a deep-value approach and has had moderate success with some of its charges, including  RiverSource Diversified Equity Income (INDZX) and  RiverSource Mid-Cap Value (AMVAX).

The Disciplined Equity & Asset Allocation team, led by Dimitris Bertsimas, will take over  RiverSource Large Cap Equity ALEAX. The team currently runs an assortment of conservative allocation and target-date funds that have been around for just over two years, as well as  RiverSource Disciplined Equity (AQEAX), a quant-based large-blend fund that has been in the middle of the pack since its inception in 2003.

Finally, John Schonberg will act as manager for the fledgling RiverSource 130/30 US Equity RUSAX in the interim until a permanent replacement is found.

This cluster of mediocre RiverSource funds could use a boost, but time will tell if these new managers are able to turn them around.

Fund Reopenings
 Goldman Sachs Mid Cap Value (GCMAX) reopened its doors to investors on Oct. 23. Investors started pulling money out of the $5.9 billion fund in July 2007 when the credit crisis hit, and it has experienced outflows for 15 consecutive months as the market continued to tank. Despite large absolute losses, the fund has outpaced more than 60% of its mid-cap value peers this year, and its long-term record is encouraging. We're also fans of management's relative-value approach and think it is an appealing option for diversified mid-cap exposure.

 FPA Crescent (FPACX) reopened to investors on Oct. 20. Longtime manager Steven Romick initially closed the fund in February 2005 when assets crept over $1 billion because he didn't want excessive growth hampering the fund's investment opportunities. The fund has partially reopened twice since then (in October 2007 and July 2008) to select broker-dealers following periods of net redemptions. The $1.1 billion fund saw net inflows of nearly $35.5 million in September, but Romick decided to reopen it to all investors this month because he thinks plunging stock prices have led to attractive investment opportunities. Romick's defensive positioning--more than 40% of the portfolio is in cash--has helped the fund beat nearly all of its peers this year. That's nothing new for this fund, though; its long-term record is among the best in its category. We think this fund is a great choice.

And Closings
Munder Capital Management announced that it will liquidate its Tax-Free Money Market Fund, stating that the money market business is no longer pertinent to the firm's core strategy. The $187 million fund closed to new investors on Sept. 2, 2008. Check-writing privileges were revoked on Oct. 3, 2008, suggesting that trouble was looming. Redemptions will be issued in cash starting on Oct. 31.

The American Heritage Fund has liquidated after years of uneven performance. The Board voted to liquidate the fund back in February 2008, but failed to mention it in a prospectus filed just a month later. Cash redemptions were mailed out to investors starting on Sept. 10. The quirky world-stock fund, run by Heiko Thieme since 1990, charged high fees and took investors on a wild ride. Thieme's small and concentrated portfolio (at one time it held 73% in a biotech company that produced an injectable impotence drug) led to extreme volatility, returning 75% in 1997 and losing 61% the following year. This strange and unpredictable fund will not be missed.

Skyline Takes Full Ownership
Skyline Asset Management L.P., subadvisor to  Skyline Special Equities (SKSEX) and  Managers Special Equity (MGSEX), has made a bid to repurchase equity ownership from its parent, Affiliated Managers' Group. The relationship between the two firms dates back to 1995 when Skyline broke off from Mesirow Financial in a buyout that was financed by AMG. The new arrangement likely will have little impact on the two funds.


Katie Rushkewicz Reichart, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.