Posts filed under “Investing”

Free Enterprise Action Fund ?

Eagle_1

At Bloomberg the other day, I met Tom Borelli, one of two guys who manage the Free Enterprise Action Fund.

I was kinda surprised by their management style — they are the “anti-sociably responsible” fund — challenging corporate management that accept Global Warming as real. Sort of odd, given that alterantive energies and clean technologies are poised to be a huge growth industry for the next century.

Given my curiousity and perplexment by this, I did some homework. I found out some interesting things:

- The fund is tiny, managing only 6 million dollars after 1 year; (insufficient to generate  fees to pay salary for two fund managers)

- They own 390 individual stocks, a high number, given execution costs and slippage; 

- Neither manager has any experience running assets, but instead were lobbyists;

This raises some question right away: Why are managers with no experience running a fund? What do they actually do for a living? Here’s their backgrounds:

- Tom Borelli was a former tobacco company consultant;

- Steve Milloy was a paid Exxon Mobil consultant, challenging scientific findings of global warming. He was on the payroll when he established junkscience.com, which attempts to discredit via disinformation established scientific findings of global climate change.

The whole situation seems a bit off . . . to quote a friend, they are more like a "lobbying organization masquerading as an asset-management comp."

Odd. No wonder they barely have 5 Million after a year — sounds  like a money loser . . .

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UPDATE: May 6, 2006 9:49am

Slate’s Dan Gross has the specifics about the fund’s performance:

"Judging by the early returns, these free-marketers are failing the test of the marketplace. The fund has attracted a paltry $5.2 million in assets as of March 31. Returns have lagged the S&P 500 badly. In its first 10 months in business, the fund returned 2.32 percent while the S&P 500 rose 4.72 percent…

FEAF’s managers also don’t appear to be very interested in making money. Assembling a portfolio of 392 teeny positions (111 shares of Federal Express, 60 shares of Tiffany, etc.) is an incredibly inefficient and costly way of trying to mimic the S&P 500. Asset managers get paid based on the assets they manage. At FEAF, the Adviser (Milloy plus Borelli) receives a fee equal to 1.25 percent of assets. Five million dollars in assets throws off about $62,000 in fees annually, which is nowhere near enough to pay the salary of a professional money manager.

Page 17 of the annual report shows that the fund incurred total expenses of $302,117, a whopping 6 percent of assets. But the prospectus promises that fees won’t eat up more than 2 percent of total assets each year. And so in 2005, the adviser (i.e., Borelli and Milloy) waived his entire $44,727 management fee. What’s more, the adviser reimbursed some $185,616 in trading, administrative, and legal expenses to the fund. If the fund’s assets rise sharply in the next few years, the adviser can theoretically recoup these waived payments and reimbursements. But in the short term, it looks like Borelli and Milloy are essentially paying the fund for the privilege of using it as a platform to broadcast their views on corporate governance, global warming, and a host of other issues."

Sheesh! Thats not a fund — its a thinly disguised lobbying effort. Regardless of your political affiliation, investors are strongly advised to steer clear.

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Sources:
Mr. Immelt, Explain Yourself, Fund Says      
Amity Shlaes
April 5 2006
http://www.bloomberg.com/apps/news?pid=10000039&
sid=af2YTlE9STiM&refer=columnist_shlaes

Free Enterprise Action Fund            
http://www.freeenterpriseactionfund.com/index.html

Analysis: Free Enterprise Action Fund                  
Center for Media & Democracy                           http://www.sourcewatch.org/index.php?title=Free_Enterprise_Action_Fund

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