HispanicBusiness

BULL? BEAR? NO MATTER!

Amerindo technology (down 87 percent in the past three years), Van Wagoner Post Venture (down 91 percent) and Berkshire Focus (down 91 percent) at least sizzled when the going was good. Not so PBHG Emerging Growth. It managed to deliver most of the spills of the past three years -- plunging 73 percent -- while failing to bring home the bacon in the fat years. Indeed, PBHG Emerging Growth finished in the bottom 10 percent among its peers in each of the past two years and failed to beat the average fund that specializes in small, fast-growing companies every year since 1995.

Gary Pilgrim, president of PBHG funds, contends that the fund's recent woes can be summed up in one word: technology. All funds that practice momentum investing -- the strategy of buying companies with accelerating earnings, sales and sometimes stock prices -- fared poorly in the bear market. But PBHG Emerging Growth was a cut below the rest. Pilgrim says that's because former manager Erin Piner kept the tech weighting of the fund at 40 percent to 50 percent. She underestimated the depth and severity of the technology recession, he says. Piner could not be reached for comment.

We hesitated to induct this fund into the Hall for several reasons. Pete Niedland, 32, who has been with PBHG for ten years, was named the fund's manager in January, and he promises to whittle down the tech exposure. Pilgrim, 62, is forthright in acknowledging the fund's troubles. "We made mistakes," he says. What's more, momentum investing will have its day in the sun again, and so too might Emerging Growth.

But in the end, you can't overlook the fund's substandard performance in good markets as well as bad--and its tardiness in making changes.

BOTTOM OF THE BARREL

Forget Bo Derek. If you want to see what an imperfect 10 looks like, gaze upon Morgan Stanley High Yield Securities. The "D" shares -- the fund's oldest class -- have finished in the bottom 10 percent among high-yield bond funds over the past one, three, five, ten, 15 and 20 years. Over the past three years alone, the fund has lost 53 percent, versus a loss of just 5 percent for the average junk-bond fund. (Junk-bond funds seek high yields by investing in below-investment-grade bonds.) If you'd invested in this fund 15 years ago and reinvested all interest and capital gains, you'd still have lost money.

The fund has produced those losses while sporting the highest yield among all bond funds -- thus enticing more hapless investors into its maw. (The D shares boasted a yield of 17 percent last year.) Reaching for yield has been the fund's Waterloo. Competing funds tried to allay their thirst for low-grade corporate bonds the past several years. But Morgan Stanley High Yield bellied right up to the bar and ordered straight-up shots of telecom and cable-television bonds -- such as Adelphia Communications, Global Crossing and WorldCom, all of which are now in bankruptcy.

To make matters worse, when Morgan Stanley folded three of its closed-end bond funds last December, it shunted the assets into this stinker. The four share classes of the fund available to individual investors currently hold a total of $480 million.

Is there any hope for this fund? The current managers -- Stephen Esser, Gordon Loery and Deanna Loughnane -- took over at the start of 2001. But so far they haven't improved results one whit. In the latest shareholder report, dated last August, they blamed "the fund's position in the lower-rated portion of the market and in communications-related industries" for the latest calamities.

--Reporter: ERIN BURT