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Fund Spy

Morningstar Fund Spy

From Pakistan With Love
"Confessions of a Fund Manager," a captivating story by Landon Thomas in April's SmartMoney, is less frightening than it seems at first blush.

Thomas tells how, after a stint as a young analyst in Turkey with little financial experience, he got a job running $600 million for Morgan Stanley. His duties included managing the firm's Turkish Investment Fund and Pakistan Fund, and the story focuses on his travails with the latter. Not only was he clueless about Pakistan when he took the job, but the country was unstable and its stock market a disaster. Thomas notes that he was not alone, claiming that when emerging markets were hot, lots of inadequately trained people were hired to run new funds targeting wild stock exchanges. His article could make you question your faith in all funds, not just the emerging-markets variety.

However, Thomas' situation was unusual. In order to make his case, he had to highlight an extremely obscure fund in an extremely obscure market. More- prominent emerging-markets funds have stronger management. Indeed, Thomas concedes that he himself was well-qualified to run the Turkey fund (he had lived there for years, spoke the language, and had experience analyzing Turkish companies). And he praises Madhav Dhar, who ran Morgan Stanley's broader emerging-markets funds, as an astute investor with a "steel-trap mind."

The article does, however, illustrate the danger of bringing out an inappropriate offering just because a sector is hot. That's a temptation too many fund companies have given in to.

Speaking of Emerging Markets
Emerging-markets guru Mark Mobius' biggest fund, Templeton Developing Markets TEDMX, recently released its annual report, with some notable figures inside. For one thing, the fund, which as late as September 1998 had 18% in cash, had 100% invested in stocks at year-end. (The fund did suffer redemptions over that period, but still, Mobius could've kept money off the table if he had wanted to.)

This doesn't mean Mobius had a sense that emerging markets were going to boom. For one thing, he doesn't make broad market calls, and the only other time the fund was (almost) fully invested was in September 1997, right before Asia fell off a cliff. But the fund's aggressive positioning shows that even after getting burned a year earlier, Mobius is still willing to put his reputation on the line when he sees opportunity.

So where was he buying? Above all, it seems, in Singapore and Thailand. The fund's Singapore stake tripled to 9.6% and the Thailand position doubled to 7.8%, as he found new stocks and added to existing positions in both countries. He remained wary of Russia, devoting only 0.6% of assets--a mere $16 million--to that beleaguered market.

One disappointing note: After taking four years to drop to 1.96% from 2.11% as assets grew, the fund's expense ratio is back to 2.11%. That's to be expected, I suppose, given that assets have declined to the same level they were at five years ago. But as an eternal optimist, I was hoping that Franklin Templeton would see fit to give a break to loyal shareholders, by not sticking them with a rising expense ratio on top of (for many of them) deep investment losses.

UltraTrendy and UltraRisky
If you're bullish on Europe--make that really, really bullish--have I got a fund for you. I've also got a fund for you if you think Europe's markets are going to collapse. ProFunds, those rocket-fueled vehicles adept at hitting both the top and the bottom of the charts, have discovered the Old Country. Now you can play your hunches with UltraEurope ProFund, which uses leverage to try to double the return of a homemade Europe index, and UltraShort Europe ProFund, which uses short-selling techniques to get "twice the inverse" of that index.

The idea is easy to chuckle at. But there's a sound idea beneath the funny names and guaranteed volatility. The benchmark the funds use is a combination of Europe's most recognizable indexes: Britain's FTSE 100, Germany's DAX, and France's CAC-40. That's an appealing way to play "core Europe." In fact, I think ProFunds should offer another fund that simply tracks the combination of those three indexes without shorting or leverage. With low, index-fund-like expenses, of course. I don't know of any fund doing anything like that. (Other Europe index funds either target single countries or the whole region, and some track different indexes.)

Stat du Jour
17.2%. That's the percentage of assets that Fidelity Nordic FNORX has in Nokia.