"The fund industry has made this mistake before. I was sure it would happen again. And, even after all this, I say this will happen again sometime. The fund industry hasn't learned anything," Perritt warns.

Many managers believe the basic problem of the industry-regardless of whether a manager is growth oriented or value oriented-is not sticking to promises of a fund charter, of becoming carried away by the need to bring in large new assets. That, they say, distorts investment fundamentals.

Sticking to its principles explains much of why Jensen was lagging its growth peers late in the last century. But over the past three years, it virtually broke even (-0.17% annualized through April 30), which meant it beat its peers by about 2000 basis points. (Large growth funds in this period averaged an annual return of -20.5%, according to Morningstar). The fund, which was very small until two years ago, has a conventional philosophy. Its p/e ratios are low compared to its peers, averaging about 20, and its beta is about two-thirds of the S&P 500.

"The most important component of our strategy is ensuring that the business and pricing risks are held to a minimum," says Bob Mullen, a principal of Jensen Investment Management. "We want to buy great companies with a margin of safety."

Typical lead holdings are Jones Apparel Group, Stryker, State Street Advisors and MBNA. Most of the portfolio has companies with P/Es in the high teens or low 20s. Mullen says most managers wouldn't take this tack in the late 1990s.

"That's when we were lagging most growth funds," Mullen adds. But then things changed quickly. Consequently, when the market blew up, they found that "they had lost their way," he says. Jensen's asset base, by the way, has exploded. It has gone from some $18 million three years ago to more than $1 billion today.

Perritt also will not buy pricey entries for his portfolio, which has grown but is still a rather modest $45 million. Perritt, who actually had a 35% gain one recent year, blames the big fund families for the industry's woes. "They just hate me at Fidelity, Janus and Vanguard, but they were coming up with the flavor of the month funds just to get in the bucks. They were coming up with sector funds that were inherently dangerous, and I said so," says Perritt. "They didn't like me at the big shops for saying nasty things like that in public, but so be it."

History can be nasty. But Perritt's friend, Chuck Royce, says that it is essential for successful portfolio managers to study it. "So many managers had never lived through this kind of thing before, and that's one reason why they made so many of the same mistakes that managers made back in the early 1970s," says Royce. "And that's a reason why another generation of managers will make these mistakes again."

And then, once again, the meek will inherit a shattered fund industry.

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