What's in a name?
That which we call a large-cap value fund, by any other name, would smell like, well, a large-cap value fund.
With apologies to Shakespeare, the mutual fund industry periodically seems to forget what's in a name, which is why it creates issues like the Dreman Domestic Large Cap Over-Reaction fund, for which registration paperwork was filed last week.
At the risk of over-reacting myself, the new fund - which has yet to open or be assigned a ticker symbol - is an example of skin-deep thinking, the kind of thing that investors should be thin-skinned about.
We have seen this kind of thing before; the funds never live up to the name.
In this case, it's hard to get an explanation for the name because there's really nothing in the prospectus that properly explains where "over-reaction" comes in. Presumably, the strategy involves buying companies where manager David Dreman, a veteran contrarian, believes the market has over-reacted to news and economics, beating the stock down to low valuations.
The prospectus says only that the fund will "invest at least 80 percent of its net assets in common stocks of domestic large capitalization companies … that at the time of purchase are similar in market capitalization to those listed on the Russell 1000 Value Index," noting that the manager will use a quantitative screening process to "identify overlooked large cap companies with low price-to-earnings ratios, solid financial strength and strong management, that are selling below their intrinsic value and that pay relatively high dividends."
I'm not over-reacting when I say that this sounds like virtually every other large-cap value fund out there. The spin is less on the specifics of how the fund works - the quantitative approach, etc. - than in the name.
With the fund in registration, the folks at Dreman Contrarian funds can't tell me what they're thinking, but the history of funds with oddball names suggests that investors seldom get what they pay for.
Gabelli Interactive Couch Potato, for example, was basically a global growth fund, which must be why it was eventually renamed GAMCO Global Growth (GICPX).
The latest trend has been for "unconstrained" bond funds from families like PIMCO, AllianceBernstein, Federated and Hartford among others. These perform like any other multi-sector bond fund, meaning the only real "difference" is in the name.
These are not gimmick funds, based on some ridiculous investment concept (there are plenty of those throughout time too), but they are trying to distinguish themselves at the most superficial of levels.
By rule, if a fund has an asset type in its name, it must invest at least 80 percent of its portfolio into the category it is named for. Thus, the XYZ Technology fund must hold the vast bulk of its money in tech stocks.
So the XYZ Bond fund would have to put 80 percent of its money in bonds, but it's not "constrained" to any one type of paper unless it throws a modifier in there, such as XYZ Muni Bond.
That means "Unconstrained" is simply a device, a way to tell potential shareholders that this is a "go-anywhere" fund.
Likewise, the key words in the new Dreman fund are "large-cap," even if people will focus on the word "Over-Reaction" as if it somehow gives true insight into David Dreman's thinking. (He's a deep-value manager who has always looked for issues where the market has over-reacted, creating attractive buying opportunities. Nothing new there.)
I'm not saying people should avoid the new Dreman fund because of its name. I am saying there is no reason to buy it thinking - because of its name - that "this must be something different."
As with any fund, investors need to dig deeper to understand what they are getting into.
Fund companies can get around naming conventions pretty easily. Use a name that has nothing to do with a specific investment - call your fund something like Clipper or Magellan or simply use the manager's last name - and the fund can go anywhere.
The problem is when a fund mixes the two, using specific words, like "large-cap" with nonsense like "Over-Reaction" or "Unconstrained."
No matter the name, shareholders need to know and understand what a fund does.
Consider the Morningstar style box, a tic-tac-toe grid that shows different asset classes and investment styles; you should know where each of your funds fits on that kind of grid and what it does. That way, you can look at any new fund that comes on your radar screen and know whether it fills a need, or overlaps your current holdings.
"People hear about something like this and think it's different," said Geoff Bobroff, a fund industry consultant in East Greenwich, R.I. "It's not. It's the same thing, just in a different wrapper, under a fancy name. If you're a shareholder, if those words don't make a difference in what the funds do, then they don't make a difference to you."
Chuck Jaffe, senior columnist for MarketWatch, can be reached at firstname.lastname@example.org.