Monday, January 08, 2007

Another dumb investment idea 
This one is dumber than most, in a lot of ways:

But [Russ]Kinnel [Of Morningstar] criticized the expense ratios of the Free Enterprise and Blue funds, which are essentially run like index funds. Free Enterprise Action and the Blue Small-Cap fund charge annual expenses of 1.75 percent; Blue Large-Cap charges 1.5 percent. The average for a socially screened index fund is 0.85 percent, according to Morningstar.

High expenses can be a drag on total returns. The Free Enterprise Action fund lagged the Standard & Poor's 500-stock index by about 5 percentage points in 2006. "I think it would be much smarter to invest in a good fund and donate some portion of the proceeds to whatever cause you want to help," Kinnel said.

The first concern of any investor in these funds may well be their political agendas, which are splashed all over the companies' Web sites (www.bluefund.com and www.freeenterpriseactionfund.com).
The Blue site says the funds will invest only in companies that both "act blue" and "give blue." The Free Enterprise Action fund site says the managers want to wage shareholder proxy campaigns to "promote the American system of free enterprise." The Blue funds operate much the way traditional socially screened funds do, eliminating companies they regard as having poor environmental records, for example.

But what really sets the Blue funds apart is their exclusion of companies that make less than 51 percent of their political donations to Democrats. Although the funds do not have any official connections to the Democratic Party, the funds' managers, Daniel de Faro Adamson and Joseph J. Andrew (a former Democratic national chairman) plan to meet with finance chiefs of Democratic political campaigns and union pension funds to ask them to become Blue fund investors.

Can you say ERISA, ladies and germs? Can you say "fiduciary duty?"

I smell a lawsuit waiting to happen - against the Blue Fund, anyway. Shareholders in the Free Enterprise Action Fund are just going to have to pay the stupid tax, generated by the cumulative effect of an outrageous expense ratio over the years, compared to the 10 to 50 basis points available in other large cap index funds.

This kind of marketing over substance crap is an embarrassment to the mutual fund industry.

Splash, out


(Via Bill Hobbs, who has a few things to say, via The Great One)

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