Mutual Funds
She Only Buys What's Hot
Janet Brown has built a small financial empire doing precisely what we tell you not to do. So who's right?
By Elizabeth Ody, Associate Editor
From Kiplinger's Personal Finance magazine, June 2008
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When it comes to picking mutual funds, Janet Brown turns conventional wisdom on its head. Brown couldn't care less about the name of a fund's manager, its holdings, its fees or its long-term record. Instead, she selects funds in her NoLoad Fund*X newsletter and for her small but expanding family of mutual funds exclusively on the basis of their short-term performance.
Brown isn't alone in using a momentum strategy for picking funds. But her record is one of the best. Over the past ten years to April 1, NoLoad Fund*X was the top-performing fund letter, according to the Hulbert Financial Digest, which tracks investment letters.
Fund*X has beaten the U.S. stock market every year since 1997, when Brown acquired the firm that publishes the letter. Her flagship fund, FundX Upgrader, which she launched in late 2001, has lagged the market slightly so far in 2008. But it is coming off five straight years of double-digit gains.
With success has come wealth that Brown, 57, could hardly have imagined when she went to work for Fund*X's founder, Burt Berry, in 1978. Today, Dal Investment -- named after Berry's children, Douglas and Linda -- has 21 employees, reaches 14,000 subscribers with its bimonthly newsletter, and manages $2.3 billion in mutual funds and separate accounts. Brown, who works out of a corner office overlooking San Francisco's financial district, won't disclose financial details, but we estimate Dal's 2007 revenues at upwards of $25 million.
A simple formula
All of this hinges on an investment strategy as simple as a game of tick-tack-toe. To home in on hot funds, Fund*X averages the one-, three-, six- and 12-month returns for each of the 1,300 mutual funds and exchange-traded funds it tracks. A fund earns a bonus each time it lands among the top 15 funds in one of the four time periods.
Fund*X then ranks the funds by the resulting scores. It calls the top 13 to 15 funds "buys." All the others in the top 30% are labeled "holds," and lower-ranked funds are called "upgrades," which readers are instructed to sell and replace with funds from among the "buys." "It's really a very unsophisticated process," says Berry, who still keeps an office in Dal headquarters. "It's just the idea of progressively moving your money into the funds that are doing well."
Berry, 86, himself took a roundabout route to investing. After earning a business degree from Stanford in 1943, he spent the rest of World War II in Texas as a B-17 pilot, waiting for orders to go overseas that never came. After the war, he dabbled in real estate while learning about mutual funds, before deciding to pursue his funds hobby full-time.
Berry founded Dal in 1969 to manage retirement accounts for a small group of private clients. For years, he followed a back-of-the-envelope momentum strategy -- focusing on no-load funds that were hitting the top of the charts of the few newsletters that tracked them. He started Fund*X in 1976 to publish performance results on the 120 or so no-load funds then in existence, typing figures on 8-by-11-inch sheets of paper.
Brown, who radiates the effortless cheer of a native Californian, came to funds by chance. After graduating from San Diego State with a degree in art and architecture, she worked in Brussels for a U.S. financial-services company. When she returned to the States, she answered an ad for a position as Berry's assistant. "I needed a job," Brown recalls. "That's how I got interested in investments."
She started by crunching numbers, then assumed more responsibilities as Dal grew. She eventually took on money-management responsibilities and became managing editor of the newsletter. When Brown purchased Dal from Berry in 1997, the company employed nine people and managed about $200 million in private accounts.
Today, the 16-page letter offers fund rankings, market commentary and directions for readers who want to follow its strategy. A key element of Fund*X's approach is its system of categorizing funds according to risk.
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