US News and World Report says that the first decade of the 21st Century for fund investors got worse after the dotcom bubble burst in 2000. The media publication picked its 10 worst fund disasters:
Reserve Primary Fund: Investors scrambled to cash in shares after the fund’s price sank to over $1/share on September 16, 2008. According to US News & World Report, the Reserve Primary Fund’s biggest mistake was relying too much on Lehman Brothers, which left the fund with $785 million in worthless bonds when Lehman collapsed. Meantime, other funds found themselves in trouble as panic spread. Three days later, the federal government said it would temporarily insure money market funds.
Market timing scandal of 2003: Funds were accused of illegal late trading and front running that showered favor on more influential investors-leaving ordinary retail investors in a state of mistrust toward the institutions they had turned to for securing their retirement savings. Bank of America, Janus, Putnam, and PBHG were just a few of the financial firms accused of market timing, though the practice appeared to have permeated the entire fund industry to some extent.
Merrill Lynch Internet Strategies Fund: Merrill Lynch launched this fund the same month the dot-com bubble burst in 2000. The fund lost 70% in just over a year. The Merrill Lynch Internet Strategies Fund was just one of a number of funds that had to shut down following the crash.
Chicken Little Growth Fund: Allegations of investor fraud and poor performance led to this fund shutting down after just 16 months.
Congressional inaction: Lawmakers made US News & World Report’s list for both overlooking the Generate Retirement Ownership Through Long-Term Holding Act for nearly 10 years and neglecting to send through the Arbitration Fairness Act.
Schwab YieldPlus Funds: This ultrashort bond fund lost 35.4% in 2008. Promoted as a money market fund alternative, the losses are attributed to high-risk mortgage-backed securities that “imploded.”
TCW’s firing of Jeffrey Gundlach: Fearful he would walk out the door and take a significant portion of the team with him, TCW fired him. At least 40 employees followed Gundlach. TCW’s Total Return Bond Fund has experienced an outflow of billions of dollars.
Direxion Monthly Emerging Markets Bear 2x: Sustained 58% losses each year for the last three years. The highly leveraged fund that concentrates in emerging markets leaves plenty of room for tracking errors unless sales and purchases are made at the exact right moments.
Morgan Keegan RMK Funds: High-risk mortgage backed securities led to these funds sustaining massive losses. Morgan Keegan RMK funds lost $2 billion the year beginning March 31, 2007. Investors are lined up with their arbitration filings.
Janus: The company’s Global Technology Fund lost 84% in the 2000-2002 bear market. Janus was involved in market-timing debacle of 2003. It also lost big and damaged its reputation from holding 41 million Enron shares.
Our stockbroker fraud law firm represents investors throughout the US that have sustained financial harm because of these fund disasters.
Related Web Resources:
The Decade’s 10 Worst Fund Disasters, US News & World Report/Yahoo News, December 30, 2009
SEC Takes Steps to Address Late Trading, Market Timing and Related Abuses, Securities and Exchange Commission, December 3, 2003
Why the Burst Internet Bubble Didn’t Break the Economy, Business Week, July 21, 2000