NEW YORK -- As prices have plunged on Wall Street, many mutual fund managers are joining shareholders in reassessing their portfolios. But while the average investor is free to move in and out of stocks, bonds, cash, etc., fund managers have a harder task -- they're bound by fund rules and investment objectives.
For example, the manager of a large-cap stock fund can't just dump out of blue chips and start scooping up small-cap value stocks. And most stock funds' mandate requires that at least 90 percent of assets be in stocks -- so it's hard or impossible to seek the safety of cash.
Here's what four fund managers have to say about how they're coping with the difficult market: Year-to-date performance data are according to Morningstar Inc.
* Jim Barrow, Vanguard Windsor II and Vanguard Selected Value funds; Windsor II is down 15 percent this year; Selected Value is down 6.6 percent:
Up until this month, it's been very easy, because our stuff was holding up very well. Now everything's coming apart. Ever since July 1, the selling has moved from the tech stocks to across the board.
Trading volume has also been low, and in a big fund, where you've a 10 million share position, it requires a lot of tricks and a lot of prayers to get a trade done.
Everybody is getting a little bit of redemptions right now, but we're not getting too much. Still, it's uncomfortable. You never like to lose money.
I've been doing this a long time, about 40 years. So it's not a new thing. I think it would be terrifying to be a 28-year-old or 30-year-old fund manager right now."
* John C. Forelli, Vision Mid Cap Fund; down 12 percent for the year:
We rarely have more than 5 percent of our fund in cash.
I believe my investors have hired me to put their money in the equity market, and not 20 percent in cash. I'm comfortable based upon those assumptions, but if investors are expecting different skills from their portfolio manager they might be disappointed.
Our allocation right now is between health care and industrial companies, as opposed to one between stocks, bonds and cash.
We're in midcaps, which have done OK, so the redemptions fortunately have not been too bad for us.
Still, it's very difficult right now because the market is indiscriminately selling good stocks. In a sense you're investing in what's going to go down the least."
* Michael G. Kennedy, AXP Stock Fund; down 18.2 percent for the year:
"I've been through 1973 and 1974 and I've seen what happens when bubbles break. The thing we're going through right now is a very good thing. We're cleansing the system as we speak.
I'm actually the most positive I've been on the financial markets in over two years. That doesn't mean that I'm aggressive, fully investing and getting wild and saying it's the bottom. I am being cautious because I don't have the capability of knowing when this will be over.
About 90 to 91 percent of the fund is pure equities right now and about 3 to 4 percent in convertible bonds. The rest is in cash.
Some managers take the idea that you should be fully invested and they force money back in. But if I don't have a good idea from our research staff, I don't force it in.
We mostly buy large-cap stocks. I have identified some of the names I want to buy, but I don't feel in any rush to buy them right now."
* David Kern, Fremont U.S. Small Cap fund; down 38.7 percent for the year:
As of right now, we're about 18 percent cash. Over normal times, and I'd be hard pressed to define what normal is, you'd see a cash range between 5 to 10 percent. But with the volatility the way it's been, it's been higher.
We have a lot of companies that we are finding very attractive at this point in time, but because the near-term visibility is not there, we've been buying patiently. There are still a number of uncertainties out there and the sentiment is very negative.
The flip side is that if there's anything we're concerned about, we're being aggressive on the sell side.
Things do not look good right now, and performance -- looking in the rearview mirror -- has been very challenging. But the decisions we're making today have been key to positioning the portfolio going forward.
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