LOS ANGELES -- The company that runs one of the worst-performing mutual funds in the United States has taken a huge gamble by hiring the youngest mutual fund manager ever, a 20-year-old stock picker who has not graduated college.
Frontier Equity Fund, run by Freedom Investors Corp., hired Chris Lahiji after his fantasy mutual fund -- a stock portfolio that was tracked on the Internet but had no real money at risk -- racked up a 170-per-cent return in about a year.
The assets of Frontier Equity Fund, based in a suburb of Milwaukee, Wis., have jumped tenfold in the past half-year, most of it since Mr. Lahiji became co-manager in September, as investors, including his parents, poured in hundreds of thousands of dollars.
"I'm pleasingly shocked how well he has been doing," said the man who hired Mr. Lahiji, Frontier co-manager Joel Blumenschein. "He seems to be ahead of the curve and understands where the market wants to go, at least in technology."
But Frontier had a lot of room for improvement.
"This offering is a strong contender for worst mutual fund around. Gluttons for punishment -- step right up!" wrote Morningstar mutual fund analyst Jeffrey Ptak.
He predicts the hiring of Mr. Lahiji will end in disaster.
"It is not a good idea at all that he is running money," said Mr. Ptak, who is wary of Mr. Lahiji's lack of experience and financial training.
"I just turned 20, but that doesn't mean I'm stupid," Mr. Lahiji retorted recently by phone.
Mr. Lahiji -- who lives with his parents in a Santa Monica, Calif., house filled with annual reports from companies he has researched -- has been interested in stocks since he was 11. His Iranian immigrant parents, who owned a few shares of retailer Home Depot Corp., took him to one of its stores and told him, "We own the company."
He decided to take off his junior year at a local college to concentrate on his new job.
"Wall Street has yet to give me a chance," he said, bemoaning the lack of respect he is so far receiving.
But the Internet has given him plenty of opportunity.
Mr. Lahiji gained an on-line following by ferreting out small and tiny companies, or "microcaps," with big futures.
Mr. Lahiji says his "Tiny" fund launched in November, 2002, had a 170-per-cent annual return on its collection of investments in small companies, a volatile fund category. The return does not count transaction and other real-world costs. The Frontier fund, also a microcap, was up about 12 per cent.
Mr. Lahiji exudes self-confidence despite his lack of a long-term track record, but even he cautions that 2004 will not look as good as 2003. The microcap rally that boosted established funds by high double-digit percentages this year means there are fewer bargains to be found, he says.
Mr. Blumenschein got into the fund advisory business almost by accident last year, when he bought brokerage Freedom Investors Corp., the adviser to the Frontier fund, at the estate sale of an acquaintance who had died.
"I wanted the brokerage firm and I got the advisory," he said. He considered shutting down the fund, which has been declining for years. It fell 54 per cent last year, when its expense ratio was a whopping 42.36 per cent of its assets.
Mr. Blumenschein said he and a financial partner decided to save the fund for the sake of investors who had hung in through bad times, and they sought out an experienced manager.
They did not get far with established professionals, but Mr. Lahiji called in June and would not take no for an answer.
"His honesty, his forthrightness was impressive in an industry right now that is wracked by scandal," said Mr. Blumenschein.
Morningstar's Mr. Ptak sees the arrangement differently.
"This really seems to be a marriage of convenience for both parties -- Chris Lahiji and Joel Blumenschein," Mr. Ptak said. Mr. Lahiji wanted to become the youngest mutual fund manager ever -- and did -- while Frontier needed new investors that Mr. Lahiji's Internet image could bring, Mr. Ptak said.
Other reviewers are also scathingly skeptical of Mr. Lahiji, but the number of investors has grown to about 160 from around 100, according to Mr. Blumenschein. He said assets under management are up to $540,000 (U.S.) from a low near $50,000 six months ago.
© 2007 The Globe and Mail. All rights reserved.
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