Fund Times: Wanger and Zell Depart, Baron's Ethical Lapse

Perhaps the most colorful and successful couple in mutual fund industry are headed for retirement. Ralph Wanger, founder of Wanger Asset Management in Chicago (now Liberty Wanger) and manager of  Liberty Acorn Fund (ACRNX), and his wife Leah Zell, manager of  Liberty Acorn International (ACINX), announced they would retire Sept. 30, 2003.

Wanger, 68, departs as one of the longest-tenured fund managers in the business. Over more than three decades he became known for his stellar record as well as his wry commentary in shareholder letters. Likewise, Zell, 53, was one of the longest-serving and most successful international small-cap managers around. They had agreed to stay with their firm for five years when Liberty Funds (which is now part of Columbia Management Group  and FleetBoston Financial ) bought Wanger Asset Management nearly three years ago, but they have decided to exercise opt-out clauses. Both Wanger and Zell will continue to advise the firm.

Wanger started Liberty Acorn Fund in 1970 at Harris Associates, the current advisor to the Oakmark Funds. He left Harris to start Wanger Asset Management in 1992, taking the fund with him. Over the trailing 15-year period through March 30, 2003, Liberty Acorn posted an annualized 13.5% gain.

During the past decade, Zell's fund achieved a 5.6% annual gain, and beat more than 80% of all foreign funds in a tough climate for international stocks.

Wanger's longtime comanager Chuck McQuaid will succeed him as chief investment officer and manager of Liberty Acorn.  Liberty Acorn USA  manager Rob Mohn and  Liberty Acorn Twenty  manager John Park will serve as comanagers. A couple of relative newcomers, Zach Egan and Louis Mendes, will take over Liberty Acorn International. They joined the firm in 1999 and 2001, respectively.

Baron Bounced for Ethical Lapse
Morningstar has dropped  Baron Growth (BGRFX) as a  Fund Analyst Pick, but not because we think manager Ron Baron has been doing a poor job. Rather, we've nixed the offering as one of  our favorite small-growth funds due to questions about his ethics. Baron and two traders at Baron Capital (the affiliated broker-dealer of the fund's advisor) have agreed to pay a total of $2.7 million to settle Securities and Exchange Commission charges that they manipulated the closing stock price of Southern Union  to benefit from a pending merger between the Austin, Texas-based gas company and another utility.

Baron, the firm, and his employees agreed to pay the fines without admitting or denying fault. He agreed to pay $500,000 to settle the allegations while his firm agreed to pay $2 million. Baron Capital traders David Schneider and Susan Blenke will pay $125,000 and $75,000, respectively.

The SEC alleged Baron and the traders tried to boost the closing stock price of Southern Union over 10 days in October 1999 to improve the terms of Southern Union's acquisition of Pennsylvania Enterprises. The deal's stock and cash exchange ratio depended on the average closing price of Southern Union over that period.

Baron owned about 10% of Southern Union in his funds and other accounts at the time, according to the SEC, which used recorded conversations among Baron, his traders, and the order clerk to bolster its case.

Janus Continues Quest for Value
More than three years after a bull market for growth stocks crashed, Janus Capital is still trying to leaven its mutual fund family's growth-heavy lineup. Denver-based Janus said pending shareholder and board approval, it will acquire  Vontobel U.S. Value  and  Vontobel International Equity , two offerings that have posted strong relative returns over the last decade, but haven't been able to attract much money under their own brand name. Both Vontobel funds have less than $100 million in assets, but their 10-year trailing returns through the first quarter of this year are in top half of their respective categories.

Last year Janus picked up three new value funds when it took over the funds of its former corporate sibling Berger Financial. It also launched two new value funds for institutional investors and took a 30% ownership stake in Chicago-based value shop Perkins, Wolf, McDonnell and Company.

Longleaf No Longer Available at Schwab
Investors who shop for funds via Charles Schwab mutual fund marketplace will no longer be able to buy Longleaf Partners funds after June of this year. Longleaf, whose funds have been available on Schwab's transaction-fee-only fund supermarket, objected to paying a new $20 account-maintenance fee per customer that Schwab is charging fund companies, according to a Longleaf shareholder letter. Longleaf argued that the "fees would effectively cause our direct shareholders, who hold 80% of the Funds' assets, to subsidize Schwab shareholders, who hold 20%."

Schwab has caused much consternation in the mutual fund industry this year with plans to increase the fees it charges fund companies to use its fund marketplaces. In a commentary in the April 21, 2003, edition of Morningstar Mutual Funds, Editor Kunal Kapoor opined that Schwab "was wandering down a path that could be a major long-term negative for mutual fund investors."

Successful Manager's Departure Diminishes Fund's Appeal
Peter Trapp, who put up stellar relative returns at  Needham Growth  (NEEGX) since taking it over in 1998, has left the fund to enter the hedge-fund business. Needham Small Cap Growth (NESGX) manager Vince Gallagher and Needham Aggressive Growth (NEAGX) manager Jim Kloppenburg will take over Needham Growth in addition to their own funds.

Employing a style that made use of options and short-selling, Trapp guided Needham Growth to a 12% annualized gain from the beginning of 1998 through March 2003, while the average small-cap growth fund registered a slight annualized loss over the same period. Gallagher and Kloppenburg have big shoes to fill.

Fund Industry Touts March Inflows
Mutual fund investors bought more shares of stock and bond funds than they redeemed in March, according to the Investment Company Institute. Stock funds took in $243 million in March, compared with an outflow of $11.1 billion in February, according to the Washington, D.C.-based mutual fund industry group. Domestic-equity funds had an inflow of $1.6 billion in March, compared with an outflow of $10.6 billion in February, the ICI said. International equity funds, however, reported an outflow of $1.3 billion in March, up from their outflows of $509 million in February. Bond funds took in $10.8 billion in net new investments in March, down from the $19.7 billion in inflows they reported in February.

AIM Shuffles Managers
Houston-based AIM Investments announced that Evan Harrel is leaving the firm effective May 15 to pursue "personal interests." Harrel, who had been with AIM since 1998, was a senior portfolio manager on  AIM Premier Equity  and AIM Premier Equity II . He had been running the funds since July 1998 and August 2000, respectively.

Robert A. Shelton, who has been on Premier Equity’s management team since 1997, replaces Harrel as lead manager on the fund. Shelton will remain lead manager of Premier Equity II. At both funds, Shelton will be joined by Abel Garcia, who also is lead manager of  AIM Global Science and Technology  and AIM New Technology ; Meggan W. Walsh, who manages  AIM Global Financial Services  and AIM Large Cap Core Equity (LCEAX); Michael Yellen, who is lead manager of  AIM Global Health Care (GGHCX); and Kellie K. Veazey, who has been on the Premier Equity support team since 1998 and recently was promoted from senior analyst to portfolio manager for both funds.

AIM also announced that David Pointer would join Ronald S. Sloan at the helm of  AIM Mid Cap Core Equity . Pointer, who was recently promoted from senior analyst to portfolio manager, has served on AIM’s Mid/Large Cap Core team, which supports AIM Mid Cap Core Equity Fund, since 2000.

AIM also said it has hired former USAA Investment Management manager Timothy P. Beyer. He will join the team running  AIM Mid Cap Basic Value . Beyer managed USAA's Value and Balanced Strategy funds for a couple of years until San Antonio-based USAA decided to replace most of its in-house fund managers with subadvisors last year.

Etc.
Bloomfield Hills, Mich.-based Schwartz Investment Counsel has added two funds to its lineup of socially responsible investing vehicles for Catholics. The firm has rolled out the Ave Maria Growth Fund and Ave Maria Bond Fund. They join the two-year-old Ave Maria Catholic Values Fund (AVEMX). All three offerings avoid companies involved in abortion and those that the fund's Catholic Advisory Board has decided are "anti-family," such as companies that distribute pornography. Both funds have a minimum investment of $1,000. The growth fund's expense ratio is 1.5% and the bond fund's cost is 0.70%.

 ING Worldwide Growth (NAWCX) is better off now that manager Mary Lisanti has left, but it's still not a buy. This month ING dismissed Lisanti, who was the fund's domestic stock-picker and managed other stock funds including  ING Small Cap Opportunities . Her charges suffered horrific losses in recent years. Jim Vail, manager of ING Precious Metals  for the last five years, has replaced Lisanti. Philip Schwartz and Richard Saler, the team that has successfully operated ING International  for nearly a decade, will continue running the foreign portion of ING Worldwide.