Steve Milloy: the biggest loser

A while ago I wrote about Steve Milloys Free Enterprise Action Fund and its dismal performance:

“From inception on March 1 of last year through Dec. 31, Free Enterprise Action returned 2.32 percent; the S&P 500 returned 4.72 percent. That’s ugly.”

Actually it’s worse than ugly. Daniel Gross reports

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.

Gee, I wonder where that $185,616 came from?

Comments

  1. #1 Jack Lacton
    May 7, 2006

    Sounds like it only does marginally worse than the supposed ‘ethical’ (environmentally friendly and blah de blah) fund managers…

  2. #2 Tim Lambert
    May 7, 2006

    Sounds like you don’t have any evidence to support your claim, Jack.

  3. #3 Kristjan Wager
    May 7, 2006

    Well, Jack might have a point if he is talking about British ethical funds, since it seems like ethical companies underperform compared to unethical companies, which performs 24% better, and normal companies, which performs 17% better. However, even if the ethical funds make 24% less than the S&P 500, it would still be rather better than Free Enterprise Action’s performance.

    Also, the underperformance is on a company level, which doesn’t necessarily translate into the same numbers for funds managers, since they presumably would invest in the better ethical companies. This listing shows that the ethical fund managers, as a whole, performs rather significally better than Free Enterprise Action, especially when one looks at last three years annualized (past five years annualized less so, but that is to be espected, as that period includes 9/11 2001).

  4. #4 Kristjan Wager
    May 7, 2006

    Oh, and my source for the first numbers, is here.

  5. #5 Steve Bloom
    May 7, 2006

    My guess for the source of the $: Scaife.

  6. #6 Steve
    May 8, 2006

    I think Milloy’s fund is doing substantially worse than this award winning ethical fund manager:

    http://www.austethical.com.au/prices_and_performances/performance_figures_menu/performance_figures?cid=88

    http://www.austethical.com.au/whats_new/aei_media_releases/release__fund_manager_award,_29_aug_05

    “The Australian Ethical Balanced Trust has won the 2005 Australian Fund Award in the Balanced Funds – Neutral category. The award, made by the international credit and fund rating agency, Standard & Poor’s, was announced last night (25 August) at an awards dinner in Sydney…”

  7. #7 Jack Lacton
    May 8, 2006

    Nah, Tim, just for a change I was stirring. Milloy’s fund is hopeless. My point was that if funds are set up for any other purpose than achieving the best result then clearly they won’t and that includes supposed ‘ethical’ funds.

    As a side issue on fund managers, it’s interesting that around 80% of funds invest conservatively and all pretty much achieve the average return for the year, give or take a tad.

    The other 20% or so of fund managers use more aggressive approaches to collectively achieve…by definition…the average.

    There really are very few Warren Buffets out there.

  8. #8 Ian Gould
    May 8, 2006

    “Well, Jack might have a point if he is talking about British ethical funds, since it seems like ethical companies underperform compared to unethical companies, which performs 24% better, and normal companies, which performs 17% better.”

    Kristjan, you need ot ensure that you’re comparing like with like – man yethical funds including property, fixed interest and/or venture capital components.

    Comparing such funds to equity funds is unfair – to both groups of funds since in the years after the Tech Crash the equity-based funds would have significantly underperformed the diversified funds.

    Let’s note too that most of the ethical funds are actually taking their management expenses not kicking them back in the pot.

  9. #9 Kristjan Wager
    May 10, 2006

    Ian, I was refering to companies in the part you quoted, but also made very clear later in my comment that you couldn’t use it as the basis for evaluating the performance of the funds

  10. #10 z
    May 10, 2006

    “Kristjan, you need ot ensure that you’re comparing like with like – man yethical funds including property, fixed interest and/or venture capital components.”

    I would assume that 1) any ethical fund would at this time not include any oil stocks and 2) that would significantly impair their performance relative to those funds which did.

  11. #11 Kristjan Wager
    May 10, 2006

    Wind mill factories have actually often been a better investment than oil companies, though oil companies are indeed quite good investments monetarily speaking.

  12. #12 Ian Gould
    May 10, 2006

    Yes but ethical funds tend to be overweight in renewable energy stocks which have also been performing well and also overweight in technology, small-caps and early phase high-growth companies.

    The ethical fund I helped manage until a couple of months back hd a majr exposure to helth-related stocks like CSL and Cochlear, for example.

  13. #13 Ian Gould
    May 25, 2006

    http://www.climatescience.org.nz/discuss.asp?item=50

    Based on Ken “falling carbon dioxide” Ring’s theories, I’m thinkign of startign a company called Death Valley Chemicals which will tap into the vast quantiities of carbon dioxide and other gases, such as Krypton, which being denser than air have obviously collected at the bottom of Death Valley (the lowest point on the Earth’s surface).

    We’ll just tap into the layers of carbon dioxide, ozone etc. and sell them to the chemicals industry.

    I’m sure Mr. milloy will be a keystoen investor in such a venture – after all it’ll porbably do as well as his current portfolio.

  14. #14 David Marjanović
    May 1, 2007

    the lowest point on the Earth’s surface

    That is the surface of the Dead Sea.

    By far.

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