BOSTON (Reuters) - Some of America’s biggest and best-known mutual fund companies likely suffered heavy losses multiple times this week because they had large holdings in the market’s worst performing stocks.
AllianceBernstein Holding LP AB.N, which invests $675 billion, may have been the biggest casualty. It ranked as the top shareholder in ailing investment bank Lehman Brothers Holdings Inc LEH.N, where it owned 65.6 million shares, and crippled mortgage company Fannie Mae FNM.N, where it owned 134.2 million shares, at the end of June.
At Fannie's cousin Freddie Mac FRE.N, AllianceBernstein was the third biggest holder with 41 million shares.
On Tuesday, Lehman’s stock tumbled 46 percent, while Fannie Mae cratered 90 percent, and Freddie Mac plunged 85 percent on Monday. While the companies’ share prices have recovered somewhat, losses remain enormous overall, with Fannie having given up early all of its value in the last 52 weeks, for example.
Fidelity Investments, the world’s biggest mutual fund company with $1.5 trillion invested had also loaded up on this week’s losers. The privately held company ranked as the third largest investor in Lehman and the fourth biggest owner at Fannie. At Freddie, Fidelity ranked in 10th position.
Capital Group, which runs the popular American Funds, was the second biggest investor in Freddie Mac and the third biggest in Fannie Mae. And Legg Mason Inc, home to Bill Miller who was ranked as America’s best stock picker for 15 years, held more Freddie shares than anyone else, while Legg’s ClearBridge unit was the second biggest owner of Lehman stock.
“Fidelity and Capital Group are so big that they are bound to be among the biggest owners in whatever they own,” said Morningstar analyst Christopher Davis.
And hedge fund manager George Soros could have lost as much as $84.7 million this week alone if he still owns the 9.47 million shares of Lehman he bought in the second quarter.
While the ownership lists read like a who’s who among mutual fund firms, it did not win these firms new fans, industry sources said, noting that clients either shifted their money from stock funds to cash or quit the firms altogether.
“Clients voted with their feet maybe because these guys weren’t doing the research they should have been,” said one hedge fund manager who asked not to be identified because he concentrates on betting that stock prices will fall.
AllianceBernstein said its assets under management shriveled $20 billion, or 2.9 percent, in August.
But the fact these firms were all crowded in these names also came as no surprise to other money managers.
“Fannie, Freddie and Lehman had long looked so cheap on paper that fund managers at America’s biggest firms just kept buying them over time,” said Pat Becker Jr., chief investment officer at Becker Capital Management.
“In a way, Fannie, Freddie and Lehman were some of their favorite children,” added Becker, who does not own the names.
This summer, Harry Lange, who manages Fidelity’s flagship Magellan fund, where millions of Americans save for retirement and college education, was loyal to Lehman.
At the end of June, Lange owned $138.7 million shares in Lehman, filings show. He had 10.3 percent of the portfolio invested in financial stocks at the end of June, up from 10.1 percent a month earlier.
Because the fund companies are so large, it is difficult to say which of their managers held the lion’s share of these losers, industry analysts said. At the same time, several fund companies also said the pain was spread out among various holdings.
Asset managers also noted that Fannie, Freddie and Lehman were in so many portfolios because they are all big components of the Russell 1000 Index, which gives investors access to a large swath of big U.S. stocks and is often used as a benchmark by many fund managers.
“Any closeted indexer would have been buying these names. It makes a lot of sense,” Becker added.
Editing by Andre Grenon
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