Rough Ride To Recovery

Black-owned mutual funds brace for a bumpy bull ride

Welcome to a whole new world. The stock market has rallied over the last few months after three years of gloom and doom surrounding a weak dollar, war with Iraq, and the highest unemployment rates in years. As a result, black-owned funds faced a particularly tough task: to stay in business until the market bounces back. Only two funds from our October 2003 list failed their mission: DEM Equity Institutional (DEMNX) and DEM Equity Investor (DEMEX). Both were run by Nathan Chapman who was recently indicted on federal charges for mail fraud, wire fraud, and securities fraud.

Most of the funds on the BLACK ENTERPRISE Mutual Funds Index, however, completed the task with Ariel Capital Management leading the pack with the Ariel fund (ARGFX). The small-cap value fund posted a three-year average annual total return of 14.90% as of October 7.

“Our patient approach to investing is perceived to be more valuable than ever. People realize that trying to get rich quick can lead to difficult returns,” says John W. Rogers Jr., CEO of Ariel Mutual Funds in Chicago.

The bond market has gained great momentum in what has been a bear of a market for stocks. Consequently, MDL Broad Market Fixed Income (MBMFX), an intermediate government fund, enjoyed the ride with a 7% return over the past three years. “Obviously, bonds have had a great run. Our fund’s assets have increased from $20 million to approximately $50 million over the last year and a half,” remarks Mark D. Lay, chairman and chief investment strategist of MDL Capital Management Inc. in Pittsburgh. But will that phenomenal growth sustain itself? “Over the next 12 months, bonds will have a rough time because of the increasing money supply happening here and abroad,” says Lay. He surmises that, yes, the economy is going into a rising interest environment–which means bond prices will fall–but he’s confident that “with equities not doing well recently, people now understand the importance of bonds.”

For black-owned funds, branding is the key to survival. “With the exception of top firms, the complications that black firms are facing [staying in business] are ferocious,” says Lay. “They are putting a lot of money into advertising and television, [and that's key, because] if people aren’t seeing your product then they aren’t going to call.”

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