I learned recently that the Thurlow Growth Fund (FUND:THRGX) is closing its doors. Not just to new investors, as many fine funds occasionally do (often when their strong performances have been attracting more dollars than managers can effectively invest), but to everyone. It's turning off the lights and sending everyone home.
Learning this made me curious. I clicked over to the fund's website to see what I could see. I found this announcement, front and center:
Because of the expense involved in managing a small mutual fund, the management at The Thurlow Funds, Inc., has decided to close the Thurlow Growth Fund as soon as possible. If you are a shareholder in the Thurlow Growth Fund, please contact the transfer agent to discuss redeeming your shares.
Gee, it must be tough going to run a small mutual fund, eh?
Yet many other small funds seem to manage and even grow. You charge shareholders fees to cover your administrative and compensation costs, among other things. And the more money you take in from shareholders, the more money you make, since you keep a small percentage of all invested sums via the "expense fee." Perhaps the Thurlow fund just wasn't taking in enough money? Was the universe of mutual fund investors simply not interested in this fund? Did it smell funny or something? I decided to do a little digging.
Not your usual fund
What I found at Morningstar.com surprised me. The fund was listed as owning just nine securities, with annual turnover of 928%. Yikes! Its last listed top holdings included eBay (NASDAQ:EBAY), New Century Financial (NYSE:NEW), Building Materials Holding (NASDAQ:BMHC), and Kmart, now part of Sears Holdings (NASDAQ:SHLD).
Even more interesting, this fund could be a poster child for volatility. I want to scoff at its terrible record, but it has had some remarkable years. Still, while that may be admirable, occasional great years amid many bad ones will not make for happy (or wealthy) shareholders. Take a gander at these annual returns:
1998: 43%
1999: 213%
2000: -56%
2001: -26%
2002: -31%
2003: 34%
2004: -34%
Golly. That 43% result in 1998 surely got covered in the media at the time. It's not often that a fund racks up such a hefty gain in a single year. Kudos, Thurlow! That publicity surely brought in some new investors eager for a piece of the pie. And were they smart or what? In 1999, they would have tripled their money! Surely they would have hung on, drooling, after that -- probably even adding more money to the fund.
Let's see how it all would have played out for someone who plunked in $10,000 in late 1998, after having learned of the fund's terrific recent performance. (We'll ignore fees here, though the fund charged an annual expense fee of nearly 2%.)
1998: $10,000
1999: $31,300
2000: $13,772
2001: $10,191
2002: $7,032
2003: $9,423
2004: $6,219
Ouch. That's mainly a jagged downward line. What if you only heard about the fund at the end of 1999, when it returned 213%, and you had invested your $10,000 then? Let's see:
1999: $10,000
2000: $4,400
2001: $3,256
2002: $2,247
2003: $3,011
2004: $1,987
Well, you would still have some money left .
But even if the fund tripled in 2005, you'd end up with just $5,961. If it doubled after that, you'd finally be in the black a bit. Of course, after factoring in all of your stress-induced cardiologist expenses along the way, you'd still be in the red.
So what's my point here? Be careful when you invest! Monitor the performance of your mutual funds -- and stocks -- regularly. If some aren't performing as expected, ask why. Look for strong and relatively steady track records when evaluating funds.
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More expenses for Thurlow . legal ones
A little more digging on my part turned up some additional interesting tidbits about the Thurlow Growth fund. For example, at the website of the Securities and Exchange Commission, I stumbled upon a legal document revealing that the SEC wasn't happy with Thurlow. It said:
As late as December 2000, the website prominently proclaimed returns for Thurlow Growth Fund of 422% from inception through March 10, 2000. This information, while factually accurate, was rendered misleading by Thurlow's failure to disclose that Thurlow Growth Fund's total returns had declined by more than half between March 10, 2000, and September 30, 2000, the most recent quarter. Previously, the Commission's staff had advised the Thurlow Funds that the website for the Thurlow Growth Fund included out-of-date performance returns, and the Thurlow Funds advised the Commission's staff that such deficiencies would be addressed. The Thurlow Funds did not address the deficiencies consistently.
I suppose this may shed more light on the "expense involved in managing a small mutual fund" that's supposedly causing the fund to close. And get this. At FundAlarm.com, Roy Weitz reported in 2002:
According to SEC filings for the year 2000, when Thurlow Growth was getting itself in trouble, the fund had five directors (it apparently picked up a sixth and seventh director late in 2000). ... One of the directors was asleep-at-the wheel Tom [Thurlow, the fund manager] himself, one (and then two) director spots were filled by Thurlow's sisters, and Thurlow's wife rounded out the happy little family gathering. ... All of the directors served for zero compensation, which, in this case, is exactly what they were worth.
Learn more
The mutual fund world is much more interesting than you may think. Learning more about it may help you make a lot of money -- or at least not lose too much money. Help grow your funds with these Foolish articles:
- The Case for Mutual Funds
- Slam-Dunk Mutual Funds
- Champion Funds Still Beating the Market?
- Three Reasons to Sell
- Is It Time to Sell?
Selena Maranjian 's favorite discussion boards include Book Club , The Eclectic Library , and Card & Board Games. She owns shares of eBay. For more about Selena, view her bio and profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool's core purpose is Fools writing for Fools.
