Brandywine Fund is rebounding from a woeful 1998 caused by the managers’ ill-timed decision to sell stocks and raise cash.
Brandywine, led by money manager Foster Friess, is up 17.9% this year as of Friday, exceeding the 13.9% gain of the Standard & Poor’s 500 index. Last year the fund fell 0.7% as the S&P; 500 soared 28.6%.
The difference: Brandywine Fund had just 2.5% of assets sitting idle in cash at the end of June. That’s about half what the average U.S. stock fund devotes to cash and way down from February 1998, when almost 70% of Brandywine’s assets were in cash.
“Last year was a nightmare for Brandywine,” said John Rekenthaler, director of research at Morningstar Inc., a Chicago-based firm that ranks mutual funds. “It’s important to recognize, however, that the fund has been around a decade and a half and 1998 was its only bad year.”
Brandywine is among a handful of widely held stock funds that are recovering from a subpar 1998 at the same time they face shareholder redemptions. Others are the $18.9-billion Vanguard Windsor Fund, up 19.1% this year as of Friday, compared with a rise of only 0.8% last year, and the $8-billion Mutual Shares Fund, up 16.8%, compared with a gain of just 0.5% in 1998.
Many Brandywine investors pulled money after the fund’s managers veered from their expected path and performance suffered.
The reaction was similar to a more-publicized case that occurred in early 1996 when Jeff Vinik, former manager of the Fidelity Magellan Fund, loaded up on bonds and cash at a time when stocks were rallying. Magellan’s returns soured and investors withdrew money.
Last year an estimated $3.4 billion was redeemed from Brandywine. Another $940 million was pulled in the first five months of this year, according to Financial Research Corp., a Boston-based firm that tracks fund flows.
“The fund has been among the most hard-hit,” said Chris Brown, an analyst at Financial Research. “Investors seem to be still pulling money even as the fund’s performance improves. It’s a sign of how hard it is for funds to reverse negative momentum once it begins.”
Brandywine’s assets have shrunk to $4.4 billion from $7.7 billion a year ago.