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

Category: Corporate Management, Investing, Politics

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“Every Change of Rate”

“Every Change of Rate” is an utterly hysterical parody of the black & white Police video “Every Breath You Take,” as done by some Columbia Biz School students; Its an amusing take on the Ben Bernanke, the newly appointed Fed Chief. My favorite bit are the lyrics during the second verse: “First you move your…Read More

Category: Federal Reserve, Music

Existing Home Sales Data (California Real Estate: On Sale!)

Sales of existing homes surprised to the upside yesterday. But one data point does not make a trend. This is the first rise (sequential monthly change) after 5 straight months of falling Home Sales. And that’s before we examine the data.

Before you declare the end of the housing slow down, consider:

- Existing Home sales actually slipped vs. last year by -0.7%; The reported gain was over last month’s data;

- the Inventory of unsold homes soared 7 percent in March, hittting an all-time record; There are now 3.19 million existing homes for sale, or  5.5 months’ supply; That’s the largest inventory since July 1998

- Existing homes edged up 0.3% last month to a seasonally adjusted annual rate of
6.92 million units; (we know that seasonally adjusted data is not always accurate)

- Year over year, the Northeast and Midwest gained, while the previously hot housing markets in the South and the West slipped;

- median home prices are still rising, albeit nmore slowly — up 7.4% year over year, to $218,000.

Here’s a data point that has me scratching my head:  Why are there different numbers for the year-over-year changes for seasonally and not seasonally adjusted?  Was this March somehow in a different season than last year’s March? I am perplexed.

Note that data for existing home sales comes from National Association of Realtors, a group that is certainly an interested party; Of course, as a homeowner, investor, and someone with a public bearish tilt for the second half, I’m hardly objective myself (hey, I try). But this oddity — down -0.5% for the not seasonally adjusted year over year versus down -0.7% for the seasonally adjusted year over year — is beyond my comprehension.

So much for the hard data on existing sales; Today, we get New Home Sales. Recall our prior admonishments that monthly New Home Sales Data are unreliable; look instead to a moving average.

Let’s move onto some anecdotal evidence.  A friend writes:

"Flop! Wow, KB running blue light specials in California. Not surprising,
Chico area was rated one of the most overvalued markets in the country. Houses
in the $200k space.  When was the last time you saw that in California? "

 
Oak Knoll Place Live Oak, CA

Oak Knoll Place Slideshow

Here’s the sales pitch:

"Oak Knoll Place in Live Oak is located in a beautiful
community near the majestic Sutter Buttes. With easy access to Highway 99, it is
ideally located for easy access to Sacramento, Lake Tahoe, Reno and a wide
variety of recreational opportunities. Yuba City and Marysville are
approximately 10 minutes south, Chico is approximately 35 miles north and the
Gray Lodge Wildlife area is approximately 10 minutes west. Live Oak has a
quaint, small-town atmosphere with many nearby recreational water activities,
including the Feather River, Yuba River and Sacramento River. Prices starting
from the High $200′s.
"

I don’t know Live Oak, but houses like that in California are hard to imgaine . . .

More after the jump.

Sources:
Existing-Home Sales Rise Again in March
NATIONAL ASSOCIATION OF REALTORS
WASHINGTON (April 25, 2006)
http://www.realtor.org/PublicAffairsWeb.nsf/Pages/MarchEHS06?OpenDocument

Existing Home Sales  data
NATIONAL ASSOCIATION OF REALTORS
http://www.realtor.org/Research.nsf/files/REL0603EHS.pdf/$FILE/REL0603EHS.pdf

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Category: Data Analysis, Federal Reserve, Fixed Income/Interest Rates, Real Estate

Cost Per Minute: Are Compact Discs A Good Value?

Category: Music