But some contrarian managers didn't lose any of their clients' money at a time when a typical popular fund of the late 1990s, the Janus Fund, lost some 22% annualized over the three-year period ending April 30. In the wake of those losses, Janus has reorganized its management. "We've had some disappointing three-year numbers," says James Gott, director of research for Janus, vowing that the numbers are now going to improve.
But what about those who are succeeding in this difficult period? How are they doing it?
"It has everything to do with a disciplined strategy. Many of our competitors lost it. We didn't," says Eric Schoenstein, director of business analysis for Jensen Investment Management, a one-fund shop in Portland, Ore.
"There's no shame in holding cash sometimes. And that is what we've done at times," says David Winters, manager of the Mutual Beacon Fund. "We just wouldn't buy at the top of the bubble. We wouldn't buy overpriced securities with P/Es of over 100-and that got us in trouble with some shareholders. But that's fine, because basically we want shareholders who are ready to stay with us for the long haul."
Mutual Series' six funds all had positive three-year numbers except the Mutual European Fund, and that is down only slightly (negative 1.85% annualized). Winters says that his funds buy distressed securities or good companies that are suddenly available at a big discount.
For instance, Mutual Beacon's portfolio recently had an average P/E of 14 and a beta of 0.57. All these managers, now in favor because they were not taken in by the silliness of the 1990s and the overweighting of techs, emphasize that they merely followed commonsense rules of investing.
"I'd love to say that we did something brilliant, but we didn't. We just had a low-risk approach to small-cap investing, an approach that we know will work over the long term," says Chuck Royce, founder of the Royce Funds. He says that his funds were shedding assets in the late 1990s. That's when clients were losing patience with their returns.
"Some people didn't think they were getting a good deal then, but we believe that value wins over the long term, even though it often doesn't look so good in the short term," Royce says.
Royce's six funds have all been in the black during the three-year period in which most equity funds have been black and blue. The top performer is Royce Special Equity, which is plus 18.2% a year. The "laggard" is Royce Opportunity, which was ahead only 1.3%, a number that would be called outstanding by most shellshocked fund investors these days. Royce Opportunity plays low-priced industrial and retail stocks such as Hughes Supply, Spiegel and Esterline Tech.
Royce has, as do many of the other managers interviewed, one distinct advantage over his younger peers. "I remember the 1973-74 disaster. And I remember the Nifty 50 mess," Royce says. Perritt, a friend of Royce for many years, says that he didn't predict the exact time of this recent bear market, but he knew in the 1990s that it was going to happen sometime.