How times have changed. For the most part, 1999 was a good year for the 15 equity mutual funds that make up the black enterprise Black Mutual Funds index (average 1-year total return: 21.22%; average six-month total return, ending Dec. 31, 1999: 8.97%). The first two quarters of 2000 has produced less than sterling results (Year-to-date, ending July 31: -.30%). To put it in context, the average domestic equity fund gained 4% for the first six months of 2000, according to Morningstar, the chicago-based mutual fund research company (see “Asset Allocation Comeback,” in this issue).
In fact, there has been a dramatic shift in the leadership among the equity funds on the list. One such fund portrayed the comeback kid, while another leading portfolio fell prey to the volatile tech sector.
The new king of the hill is the $257 million Ariel Fund (ARGFX). Run by John W. Rogers Jr., the fund has been unappreciated for years in a market that has favored large-cap growth equities. Roger’s strategy of buying niche players has seemingly paid off: The fund’s year-to-date total return was 11.06%. The fund’s holdings include Central Newspapers (NYSE: ECP), a newspaper chain which has a “monopoly” in the Phoenix and Indianapolis markets; Herman Miller (Nasdaq: MLHR), a manufacturer of innovative furniture seeking to cash in on the commercial real estate boom in the Midwest; and Hasbro (NYSE: HAS), the toy maker that has benefited from such brands as Pokemon licensed action figures.
What an about-face. For the six-month period, ending December 31, 1999, the fund posted a negative return of 7.34%. And its annual return for that year was also less than sterling: a negative return of 5.76%.
However, Ariel’s Appreciation fund (CAAPX) has produced a better, but not yet bravura, performance during the past two quarters. The portfolio produced a total return of 2.87%, so far this year vs. a negative total return of 10.46% for the last six months of 1999.
When we reviewed the index in our April 2000 issue, the undisputed leader was the DEM Equity Investor fund (DEMEX), which produced a cumulative total return of 90.19% for the six months ending December 31 and a staggering one-year total return of 113.61%. Talk about reversal of fortune: The fund’s year-to-date total return, ending July 31 was a negative 4.45%.
DEM (domestic emerging markets), a growth fund that invests in companies run by women or minorities, is managed by Nathan A. Chapman Jr., president of Baltimore-based Chapman Capital Management, who placed a huge bet on the ultra-volatile technology sector. At one point, the fund had as much as 15% of its assets in Broadvision (Nasdaq: BVSN), which develops and
markets application software solutions for e-businesses. At press time, the stock traded for $31.25, more than 65% off its 52-week high of $90.67 per share.
Chapman didn’t explore negative territory alone: 10 funds produced returns under 3%. One-time stellar performers like Lou Holland Growth (LHGFX) couldn’t even muster a single digit over the past seven months: a puny return of 0.96%.
With a slowdown