Are Your Funds the Same Ones You Bought?

 Safeco Growth Opportunities  has the same name it had a year ago--but you'd be hard-pressed to find any other similarities. That fund's dramatic transformation illustrates why it truly is important to keep a close eye on your portfolio.

Just 12 months ago, Safeco Growth Opportunities was a daring offering. Its then-manager made no attempt to keep the fund's sector weightings anywhere near the levels of its benchmark or of rival funds. He had more than 8% of assets stashed in a single stock (not the first time that had happened), and packed 44% of assets into the fund's top 10 holdings. In addition, he had 41% of assets in one sector, health care--more than triple the benchmark's stake.

Safeco, which was in the process of revamping its entire fund family, decided that that approach was too risky. So the fund now has new managers and a very different, much more moderate strategy. As a result, it has just 2.9% of assets in its top stock and 26% in its top 10. The current managers say they won't deviate by more than 50% from index weightings. They also dumped stocks without earnings, considering them too speculative. In short, the fund has almost nothing in common with Safeco Growth Opportunities circa February 2003.

Whether this change makes the fund more or less appealing is not the issue here. (Premium subscribers can find a more detailed discussion in the fund's  Analyst Report.) Rather, this example demonstrates that unless you monitor your funds with some frequency, you may not know what you own--and that a fund you've considered buying may no longer have the traits that attracted your attention. If you wanted a daring, focused portfolio for yourself or a client, Safeco Growth Opportunities might have fit the bill a year ago. Now it's not even in that ballpark.

Similar cases aren't hard to find. In late 2002,  Federated Equity-Income (LEIFX) brought in a new manager and substantially altered its approach. The fund, which had been more willing than most income-focused offerings to dabble in growth stocks, switched to a value-stock benchmark from the broader-based S&P 500 Index and now focuses on companies paying high dividends. It also lifted restrictions that limited its sector bets versus its benchmark, and moved much more heavily into small- and mid-cap stocks. In short, it practically became a different fund.

It has been much the same story at  AXP Strategy Aggressive , which is no longer as aggressive as it was prior to the arrival of a new manager in mid-2002. Like the old Safeco manager, this one's prior leader was willing to make huge sector bets, even on the riskiest areas of the market, such as technology. That strategy is history. The current manager installed a more restrained approach that focuses on less-exciting but steadier companies. Not surprisingly, the fund's performance in 2003, when the riskiest stocks typically posted the biggest gains, was relatively unimpressive.

Then there's  Strong Mid-Cap Disciplined . That fund is on its third different manager since starting out at the end of 1998, and each has installed a different strategy upon taking the helm. Regardless of the merits of the various strategies, that level of instability in itself should make one wary of a fund.

Note that in all of these examples, the funds didn't change their names--though all did change managers. Indeed, it makes sense to take a manager change as a prompting to check in on a fund. Often such changes don't bring on strategic shifts, but the possibility is always there.

In some cases, a fund that decides to take a new path does provide a tip-off by changing its name. But you may not notice even that strong hint unless you do the annual review of your portfolio that we often recommend--or even better, read closely the quarterly or semiannual reports the funds send you or look in on their Web sites from time to time.

The truth is that there are many sound reasons to keep watch over your holdings. Has a fund's performance slacked off? Have market movements thrown your allocations out of whack? Is a fund's advisor involved in one of the trading scandals sweeping the industry? As the above examples show, though, one of the most basic reasons is simply to discover if the funds you own are still the ones you bought.