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Fund Times

Funds Bit by Bear Stearns

Some prominent and respected managers are caught holding the bag.

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 J.P. Morgan (JPM) is buying beaten-up  Bear Stearns (BSC) for $2 per share. That's bad news for Bear Stearns' shareholders, many of which are mutual funds and all of which paid significantly more than $2 per share. Bear Stearns' stock price closed at $57 last Thursday, which already was significantly below its 52-week high of $159. So, the $2-per-share price that J.P. Morgan is paying is almost as good as nothing for shareholders who bought in and owned it at much higher prices.

 Vanguard Windsor II's (VWNFX) Jim Barrow began buying Bear Stearns last year after its share price dipped on news that a couple of its hedge funds tanked due to subprime loan wagers. Barrow thought Bear was actually less of risk-taker than the hedge fund imbroglio indicated and liked that Bear's chairman and CEO at the time, James Cayne, was the company's biggest shareholder. Even after Cayne stepped aside, Barrow bought more because the stock was trading below its book value, and he thought it would emerge from the crisis. Bear was one of the fund's top 25 holdings and took up nearly 1.4% of assets at the start of 2008. That position required nearly 8 million shares and amounted to 6.7% of the Bear Stearns' shares outstanding. Windsor II has other exposure to the bailout deal through its even bigger stake in J.P. Morgan.

 Legg Mason Value (LMVTX), which has made its share of mistakes lately with positions in  Countrywide Financial (CFC) and  KB Home (KBH), also had a significant stake in Bear as of Dec. 31, 2007, the most recent portfolio disclosure. Manager Bill Miller, who was once heralded for his long winning streak against the S&P 500 Index, had about 1.2% of the fund's portfolio in Bear, owning nearly 2% of the company. Miller, however, also owns a big slug of J.P. Morgan.

 Funds with the Biggest Stakes in Bear Stearns (by Market Value)


Market Value
($ Mil)
% of
Fund Assets*
Vanguard Windsor II (VWNFX) 7,867.7 $694.32 1.39
Legg Mason Value Prim (LMVTX) 2,300.0 $202.98 1.23
Van Kampen Equity and Income (ACEIX) 1,417.6 $125.11 0.64
Van Kampen Growth and Income (ACGIX) 1,178.6 $104.01 1.01
Vanguard 500 Index (VFINX) 1,096.6 $96.78 0.08
Putnam Fund for Gr & Inc (PGRWX) 1,035.2 $91.36 0.79
Van Kampen Comstock (ACSTX) 931.1 $82.17 0.47
American Beacon Lg Cap Value (AADEX) 901.8 $81.43 0.97
Vanguard Total Stock Market (VTSMX) 729.1 $64.34 0.06
Pioneer Independence (PINDX) 662.3 $59.81 5.50

* As of the most recently reported portfolio

Veteran investor Jim Gilligan and his team at  Van Kampen Equity and Income (ACEIX) and  Van Kampen Growth and Income (ACGIX) also got bit by the Bear. Similar to Jim Barrow, Gilligan and his team started buying Bear Sterns in the third quarter of 2007 because they thought the stock was selling at a steep discount to its book value and that much of the bad news was priced into the stock. Gilligan's squad liked Bear's international operations and thought the Federal Reserve's rate cuts and moves to pump liquidity into the market could help, since Bear historically has been a big player in fixed income. At the end of 2007, the Van Kampen funds had roughly 1% of their assets in Bear Stearns, which amounted to more than 2% of the company.

 Pioneer Independence's (PINDX) Andrew Acheson devoted the most concentrated slug of assets to Bear. As of Jan. 31, the fund had 5.5% of its assets--the fund's top holding--dedicated to the troubled broker. The fund lost 4% of its value on Friday, which was worse than 99% of its category rivals, suggesting it still held a big stake in Bear. (According to information on Pioneer's Web site, however, the fund had liquidated its Bear Stearns position by the end of the day on Friday.)

 Funds with the Biggest Stakes in Bear Stearns (by Percentage of Fund Assets)


Market Value
($ Mil)
% of
Fund Assets*
Pioneer Independence (PINDX) 662.3 $59.81 5.50
Pioneer Select Growth (PSEFX) 1.0 $0.09 5.13
Pioneer Mid-Cap Growth (PITHX) 226.8 $20.48 4.40
Kelmoore Strategy (KSOIX) 30.0 $2.40 4.26
Fidelity Select Brokerage (FSLBX) 319.5 $28.85 3.96
Osprey Cc Lg Cap Val Eq 1.6 $0.14 3.36
JHFunds 2 VI NAV 4.9 $0.44 2.76
JHT Value Tr (JEVLX) 94.5 $8.54 2.74
BB&T Mid Cap Value (OVEIX) 74.9 $6.76 2.70
Morgan Stan Ins US Mid Value (MPMVX) 47.4 $4.18 2.39

* as of the most recently reported portfolio

Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.