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Enron (ENRNQ
) employees who watched their retirement savings disappear aren't the only ones who have been hurt by the energy trader's collapse. Some of the nation's most popular mutual funds -- which pool cash of many thousands of investors -- held large stakes in the now-busted stock.
Whether they were in sector funds like Rydex Utilities Adv (RYAUX
) or giant index funds like the Vanguard 500 (VFINX
), shares of this once-mighty stock -- now trading for pennies -- abounded. Also, bond funds held heaps of the Houston corporation's debt, with some having unusually high exposure equaling 4% or more of net-asset value. In the next few weeks, those caught with a large position when the company imploded last fall will report more meager returns for the fourth quarter than they otherwise would have. How much of a hit depends on how big a chunk of Enron was in their portfolio, what they paid, and at what price they bailed (see table, "Collateral Damage").
Utility-sector funds will likely be among the hardest hit. Some held 5%, 6%, or even 8% of their assets in Enron stock before the slide of October and November, according to information filed with Morningstar, which tracks mutual-fund performance. Such funds also suffered as investors shied away from utility stocks, says Russel Kinnel, Morningstar's director of fund analysis. It's hard to fault the utility funds or, for that matter, big S&P 500 index funds, for holding Enron.
NATURAL FIT. Because of their nature, each would have been laden with healthy servings of the once highly valued utility. But Kinnel has little sympathy for the likes of Merrill Lynch's Focus Twenty A (MAFOX
) where managers had to keep track of only 20 stocks but somehow got caught with 5.5% of their assets in Enron as late as July 31 (the fund's latest filing date before the Enron crash). The Focus Twenty lost 70.4% of its total value in 2001 -- with Enron accounting for about 3.3% of the total loss, says Merrill fund spokesperson Christine Walton. Walton says the fund started backing out of Enron on Sept. 20, when it was selling around $28, and had shed its entire position by the end of October.
Merrill, attracted by what looked like strong earnings-growth potential, bought in at an average price of $60 and sold for about $20. The fund manager at that time took a voluntary severance package in December and is no longer with the firm, she says.
Several Alliance and Janus funds also had large holdings in Enron. Overall, Alliance Capital Management had 43 million shares of Enron as of Sept. 30 -- almost 6% of Enron's stock -- according to FactSet Research Systems, which provides financial information to professional investors. Its Alliance Premier Growth Fund (APGAX
) topped the list of fund shareholders, with 16.7 million shares. Such fund managers have some explaining to do, says Kinnel. An Alliance spokesperson declined to comment on why the firm invested so heavily in Enron or what the impact will be on returns.
WISER NOW. Janus ranked second in overall Enron exposure in September, reporting 41.4 million shares. Four of its funds ranked among the top 10 based on the number of Enron shares held. Two other funds -- Janus 2 (JTWOX
) and Janus Special Situations (JASSX
) -- each had more than 4.6% of their total asset value invested in Enron.
"We believed in the basic business of Enron, in the energy-trading business," says Jane Ingalls, a Janus spokesperson. Some of the company's funds suffered declines from their Enron exposure, she says. The firm declines to say which. But others made money because they bought in early, while the stock was rising. Adds Ingalls, "We don't hold Enron any longer." Investors in such funds no doubt wish they never had.
Collateral Damage
Equity funds with the most Enron stock at last required filing
Fund
Shares Held (millions)
Percent of Net Asset Value
Date of Report
Alliance Premier Growth A
16.7
4.10
9/30/01
Janus
16.1
2.87
4/30/01
Janus Twenty
8.9
2.78
4/30/01
Janus Mercury
6.6
3.60
4/30/01
Vanguard 500 Index
6.2
0.11
9/30/01
Fidelity Magellan
5.7
0.22
9/30/01
AIM Value A
5.5
0.85
9/30/01
MassMutual Instl Balanced S
4.6
1.21
9/30/01
Morgan Stanley Dividend Growth Secs B
3.6
0.94
9/30/01
Janus Growth & Income
3.4
2.74
4/30/01
Data: Morningstar Inc.
By Carol Marie Cropper in New York Edited by Douglas Harbrecht
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Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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