Bull-Market Bust

The Lindner Funds group is making an offer that many investors may find hard to resist. The St. Louis firm is letting its mutual-fund shareholders buy and sell stocks over the Internet for as little as $7 per trade through an affiliated Internet broker.

Even in an era of fee deflation, commissions as low as $7 are eye-openers. Lindner says the new rate is the lowest in the industry.

Yet on closer inspection, the offer isn’t as appealing as you might think. Besides requiring that you trade over the Internet, Lindner is extending the offer only to those shareholders who keep $25,000 invested in its mutual funds. Therein lies the rub, because the Lindner funds haven’t been performing all that well lately.

“It always makes me nervous when a company feels like it needs to reward customers for their faith, especially a mutual-fund company,” said Roy Weitz, a certified public accountant in Tarzana who runs FundAlarm.com, an Internet site that offers guidance on which funds to sell.

Weitz is unswayed by the offer and recommends selling the Lindner Growth Fund, noting that the portfolio has lagged the competition over the past one, three and five years.

Performance “is the only thing mutual-fund companies are good for and the only basis on which they should be evaluated,” he said.

Performance was once a strength of the Lindner Funds ([800] 995-7777), a no-load family with $3.3 billion spread among seven portfolios.

In 1981, Lindner Growth, which at the time was known as the Lindner Fund, outperformed the Standard & Poor’s 500 index by a whopping 40 percentage points. Its sibling Lindner Dividend Fund beat the index by more than 31 points that year. And both portfolios continued to outperform the market through the 1980s.

But the magic seems to have worn off. The Lindner funds, most of which are conservative choices, did not fare well after the bull market shifted into higher gear in 1995.

“In a downturn, the family may be vindicated,” said Amy Granzin, an analyst at Morningstar Inc. of Chicago who follows four of the portfolios. “But these aren’t bull-market funds.” It’s perhaps notable that company founder Kurt Lindner, a certified public accountant by training, sold the company to Eric Ryback, a Lindner portfolio manager, in 1993. Ryback boasts about not following the Wall Street crowd. An avid backpacker, he wrote in a recent shareholder newsletter that he does not have a degree from a “prestigious business school and has never worked in New York.”

Ryback is listed as co-manager of all six stock and bond funds and might be spreading himself too thin.

Both Lindner Dividend and Lindner Growth currently rank among the bottom 15% of their respective peer groups in terms of three-year performance, according to Morningstar. Both rank in the bottom quarter for five-year performance.

Lindner Utility has a good three-year record but its relative performance faltered in 1997. Lindner International is too new for anyone to make definitive judgments about it.

Ryback did not return phone calls for this article. However, Lindner spokesman Pete Greenley said the firm’s managers remain defensive minded, and he attributed recent lagging performance to small value stocks being out of favor. The motivation behind the $7 trading offer, Greenley added, was to call attention to the firm’s Web site (https://www.lindnerfunds.com) and “reward our more loyal shareholders.”

The group’s most interesting fund, Lindner Bulwark, is designed to preserve capital in times of economic adversity, relying on defensive investments and tactics such as gold stocks, put options and short selling. Unfortunately, the fund has been fighting an uphill battle over the last three years, as demonstrated by its 22% drop last year as the market soared.

“The Lindner funds always have put forth a defensive posture,” said Morningstar’s Granzin. “But sometimes they seem to go overboard in piling up big cash positions.”

In Bulwark’s case, she added, part of the problem involved an overemphasis on gold stocks, which were pummeled last year when the metal’s price retreated.

What’s more, the six Lindner stock and bond funds as a group don’t offer a diverse array of investment choices. Morningstar classifies Lindner Dividend, Lindner Growth and Lindner/Ryback Small Cap all as small-company value funds. That leaves one foreign-stock fund, Lindner International; one sector fund, Lindner Utility; along with Bulwark and a money-market portfolio.

Thus, the family is short on large-company stock funds, tax-free bond funds and more.

Lindner/Ryback Small Cap has been one of the family’s few solid performers of late, ranking among the top quarter of small-company value funds over the last three years. A new portfolio manager, Donald Wang, took over two years ago.

Weitz wonders if promotional offers like Lindner’s $7 commission deal will become more common in the fund industry.

“As mutual funds find it increasingly hard to beat the indexes, it seems likely that they will try to compete on other ground,” such as offering frequent-flier miles or perhaps even toasters, he said, adding: “It seems to me that investors need to resist these marketing efforts and keep their eyes focused on investment return.”

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Russ Wiles is a mutual fund columnist for The Times and coauthor of “How Mutual Funds Work,” published by Simon & Shuster. He can be reached at russ.wiles@pni.com