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After the bear market, some explaining due

CHICAGO — CHICAGO - AT A recent Morningstar Investor Conference here, there was a lot of talk about the end of the bear market, or at least how the worst appears to be over.

If we hold that to be true - and it's still open to debate in my mind - then it's time for the bear-market post-game show, and today's wrap-up raises an interesting question: Which big fund company has the most to answer for? There are plenty of contenders. Lots of funds were managed recklessly during the bull market and well into the bear.

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But to truly wear the crown for owing investors the biggest explanation/apology for what went wrong, there must be performance surprises coupled with poor shareholder guidance and disappointments across virtually all categories, all accomplished with an attitude bordering on superiority and cockiness.

Layer those requirements and it quickly becomes obvious that there are three main contenders for the crown: Janus, Putnam and AIM.

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This week and next, we'll look at what these three fund firms must answer for, in the hope that investors will see and hear those explanations from them, and see corresponding changes and improvement, in the future.

No matter who gets this dubious achievement award, all three finalists should be mighty defensive about their actions of the past few years.

All are among the giants of the business, and were securely in the top 10 for assets under management while the bull market was raging.

Putnam and AIM are leaders among funds sold through advisers, and grew huge through their place in the 401(k) business, while Janus built its reputation as a no-load, direct-to-the-consumer company. It ballooned on the strength of several outstanding performance years.

The obvious place to start examining the three companies is performance, so let's start with their aggregate performance.

Lipper Inc. analyzed the three firms' "dollar-weighted decline" in equities from the time the market peaked through the end of May. In English, that means the research firm threw together all of the funds from each company and measured what that pool of money was worth at the top of the market, compared with its value today.

Putnam's decline amounted to 45 percent, which is heinous until you consider that AIM's free fall was 51 percent and Janus topped out at 56 percent.

"On this score, you could say Putnam has done better than Janus," says Lipper research analyst Jeff Tjornehoj, "but they're all poorly off. And none of them had enough good funds to save them here; these results show that the performance wasn't isolated in one or two funds per family."

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Things look different if you examine the three- and 10-year total return rankings for the firms.

Not surprisingly, according to Lipper data, all three are below-average performers for the shorter period. For the longer period, however, AIM and Putnam remain in the below-average grouping, while Janus is well above average.

Says Tjornehoj: "AIM and Putnam didn't fall from grace, because they never achieved it, while Janus did not perform in the way investors had become accustomed to. ... I'm not sure which is worse and which fund's investors deserve the bigger apology."

Perhaps the answer to that question lies in the expectations that each firm built up among the investing public and its clientele.

In the case of Putnam and AIM, those perceptions also were shaped by the financial advisers selling the funds, but if the firm prepares the sales material and helps convince advisers on the best way to invest a client's money, it doesn't get a pass on how that planner or broker shapes an investor's hopes.

Putnam, for example, ran ads during the bull market touting the purity of its investment style, showing a container of cottage cheese and implying that it offered simple, straightforward, know-what-to-expect funds. Judging from its actions, that standard pretty much turned into cottage cheese by the late 1990s.

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Janus, of course, ran the ads talking about fund managers climbing down into manholes to root out opportunities. It was supposed to be the fund company that knew stuff other firms didn't. But it didn't know more than the rest of the world about Enron and any number of other major failures.

In fact, judging from its investment patterns, managers may have been stuck down those manholes while the rest of the fund world was starting to figure things out.

AIM, meanwhile, seemed to be striving to be a solid, middle-of-the-road fund family - a widows-and-orphans kind of investment firm where you bought in and stuck with it in order to get your long-term rewards - until management became emboldened with the idea that they could manage money aggressively. They were wrong.

Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at jaffe@marketwatch.com or Box 70, Cohasset, Mass. 02025-0070.


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