Small Fund Board Fires Original Adviser
December 13, 1999
The Dominion Insight Growth Fund, a diminutive $14 million fund based in Dallas, Texas, is playing musical chairs with the fund's investment manager. In an unusual move, the fund's board has decided not to renew the seven-year-old advisory contract it had maintained with its namesake, Insight Capital Research & Management of Walnut Creek, Calif.
Instead, effective Nov. 1, the fund board hired Nye, Parnell & Emerson of Alexandria, Va. as the fund's new interim adviser. Within the next few weeks, shareholders will be asked to vote approval of Nye, Parnell as the new permanent manager of the fund.
Fund documents filed on Nov. 30 do not explain why Insight Capital was fired. But C. Dewey Elliott, president of the Dominion Funds, which currently includes just the single fund, points to the fund's poor performance, net redemptions and lack of distribution.
According to Elliott, the fund had been suffering from mediocre performance from mid-July through the second quarter of this year. This performance has impeded distribution through its brokerage network and caused assets to flow out, he said. While performance has been better in recent months, the fund has lost more than half of its assets since 1995, he said.
The board decided to seek a new adviser, in part, because it wanted to shift from the fund being managed by one individual, James Collins, the chairman of Insight Capital and one of its founders, to being managed by a committee, said Elliott.
Also, although Elliott says that he and Collins still have a good relationship despite severing the investment contract, Insight's "emphasis on institutional accounts was a bit divergent from our retail style," Elliott said. Insight, which manages over $1 billion for institutions and wealthy investors via separate accounts, was interested in focusing on attracting institutions and large wirehouse reps to the fund. But the fund did not feel at home in those channels, said Elliott.
"They wanted us to market the fund," said David Coville, spokesperson for Insight Capital. "Frankly, we want to focus our resources on managed accounts. It's easier to attract one $10 million account rather than many $20,000 accounts."
So the Dominion Insight fund board chose to seek out a new adviser who would not only manage the fund, but do some marketing on behalf of the fund as well. Although the Dominion Insight Growth Fund will be the first mutual fund advised by Nye, Parnell, the fund's new manager, Paul Dietrich, has strong ties with the media, said Elliott. That could translate into better market exposure for the fund. Dietrich was not immediately available for comment.
The now no-load fund was originally introduced in October 1992 carrying a 3.5 percent front-end sales charge. The fund wanted to stay competitive by offering an incentive to the brokers who sold the fund, while keeping the sales charge at a reasonable level said Elliott. But the brokers with whom the fund had selling group agreements, opted instead to sell other funds paying higher commissions, he said.
Furthermore, because the fund is a "bachelor" fund and not part of a family of mutual funds, brokers virtually ignored the fund, said Elliott. In a scramble for attention, four years ago, the fund voluntarily removed its 12b-1 fee. Then two years ago, the fund completely abandoned its sales charge roots and went no-load. "We were trying to remove the barriers to entry," Elliott said.
But that investor-friendly initiative brought with it a host of other challenges, including how to pay for shelf space in mutual fund supermarkets, said Elliott.
According to Elliott, the Dominion Insight Growth Fund was not always an under-achiever. In its heyday in 1995, the fund had made a name for itself, returning 65 percent over a one-year period. In March 1995, SmartMoney magazine named the tiny fund the number one growth fund of the year. Assets flowed into the winning fund. But the fund fell victim to its own performance success.