It wasn't too long ago that our monthly newsletter featured Doug Hanson, head of Schwab Mutual Fund MarketPlace, explaining how funds can gain marketshare on Schwab.
It looks like our story came out a bit too late for the Presidio Fund (PRSDX). This fund recently announced it will liquidate at the end of April, despite having 5 stars and being on the major platforms such as Schwab, TDAmeritrade, Fidelity and Pershing.
According to Morningstar analyst Ryan Leggio's article on Presidio's demise, it is rare for 5 star mutual funds to close. "In 2009, out of the 1,170 U.S. equity funds that bit the dust, only 26 of those were 5-star funds. And since 2007, less than 2% of the more than 2,800 funds that closed were 5-star funds (compared with 17% for 1-star funds)."
The article said it was portfolio manager Kevin O'Boyle's commitment to the fund that drove his decision to resign and ultimately close the fund. "I lost the passion and commitment that is required to sustain the performance of a 5-star fund," he said.
I spoke with Mr. O'Boyle in the past when he was at Presidio and managing his former fund Meridian. So I hope he is doing well.
The fund is still 5 stars, but has underperformed in 2009 and thus far in 2010. It is likely it wouldn't have been 5 stars much longer.
The real story, though, is to learn why the fund stayed so small over the years, just $60 million AUM today, while it had excellent performance and positions on the major platforms. According to research by Strategic Insight, the fund had nominal inflows in 2005, 2006 and 2007, but started to hemerage assets in 2008 and hasn't yet recovered.
The article suggests high fees may be one of the major factors. "It's expense ratio is 1.50%, 25% higher than the 1.20% that the median no-load domestic small-cap fund charges. Morningstar has observed that assets have tended to flow into lower-cost funds in recent years."
Some other possibilites:
- How did they handle distribution? Were they passive (on the platforms, had fact sheets, and a Website) or proactive (looked for new opportunities for growth?)
- What was the fund's story over the years? Did the managers rely only on strong performance or did they articulate their disciplined, repeatable process, and offer the reasons why the fund was making money?
- Did the managers know their advisors?
- How did they communicate their good news with clients and prospects on a regular basis?
- Was their Web site informational like a brochure, or did it provide timely information to keep investors and advisors coming back? Judge the Presidio site for yourself.
It's a shame to see a growable fund die, though, but as we all know too well, being on the platform isn't enough.
Disclosure: Schwab is a client of SunStar Strategic.
