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Morningstar channels their inner Bernanke

David_Snowball
edited October 2015 in Fund Discussions
Daisy Maxey, writing for the online version of the WSJ, announced "Mutual fund's overhaul hits investors with a big tax bill." It's the same "F P A Perennial becomes F P A U.S. Value" story that we warned people about in June. Remember "F.P.A. Perennial: Time to Go"? Remember: "If you are a current Perennial shareholder, you should leave now"?

Highlights of the story:

Morningstar channeled Bernanke. Ben was adamant that there were no clear signs of trouble brewing in the years leading up to the 2007 implosion. Dan Culloton of Morningstar seemed equally surprised by Perennial's $39/share payout: “It’s certainly a big, shocking distribution. It exceeded my expectations."

Why? In the parallel case of F P A's conversion of Paramount from small growth to large value, virtually the entire portfolio was liquidated within a few months. Morningstar's own data back in June suggested a $36/share payout. The only reason you'd be surprised is if you weren't paying attention. How could Morningstar not ... oh, right. The fund only has $280 million in AUM!

Wall Street Journal practiced "safe" journalism. Two tenets of that strategy. Talk to Morningstar. Avoid hard questions.

"F P A declined comment". Yep. You could sort of feel the temperature drop after we complained about raising the management fee at Paramount when it was converted from a clone to Perennial to a global absolute value large cap. Since that change, perhaps coincidentally, assets are down nearly 50% and the fund is underwater.

(sigh)

David

Comments

  • CharlesCharles
    Thank you David. Yes, I remember the heads-up in the commentary.

    Hmmm, investors first...

    image

    c
  • Old_JoeOld_Joe
    I guess the question is "do what to investors first"?
  • VintageFreakVintageFreak
    Didn't FPA investors have enough time to bail on this fund? I didn't know it was a secret.

    FPA could have simply closed the fund and given back money to shareholders and started new fund. I take it they took the option of "why worry about starting a new fund when it is easy to just sell all shares and rename fund". From an administrative standpoint they put themselves first for sure. However, again, people had plenty of time to bail on this fund and they should have taken it.

    If institutional investors were sleeping, then they need to answer to their clients.
  • David_Snowball
    One the the F P A folks admitted that they were amazed by the reaction of F P A Paramount (FPRAX) investors to the fund's conversion a couple years ago. They replaced the manager, raised the management fee, did a 180 degree turn on the portfolio, unleashed a massive tax bill and their investors not only didn't leave, they didn't even ask questions.

    On the bright side, at least we'll never have a lanolin shortage. There are simply too many sheep around.

    David
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