Q. I made the mistake of “buying high” by purchasing shares of Merrill Lynch Focus Twenty in 2000. The fund has done terribly, but I’m afraid of making another mistake by “selling low” now. What’s the outlook for this fund?
–M.R., via the Internet
A. Timing is everything, and this fund was launched at the worst time possible. Too bad you and other investors were taken along for the ride.
Introduced in early 2000 at the height of the technology and growth-stock bubble, the fund’s advertised aim was to invest in 20 very aggressive growth stocks. It did just that, and its portfolio was hammered mercilessly.
It ranks as one of the biggest fund disappointments of recent years, with its initial assets of $1.05 billion dwindling to $151 million.
Merrill Lynch Focus Twenty “B” Shares (MBFOX) are down 34 percent in value over the past 12 months to rank in the lowest 10 percent of all large growth funds. Merrill snatched star portfolio manager Jim McCall from the PBHG Funds to run the fund, but he resigned after its initial tumble. The fund was switched a year ago to Michael Hahn, who is unproven as a lead manager.
Hahn is sticking with the same philosophy of using earnings momentum to select stocks while paying little attention to valuations. This has resulted in poor returns, extreme volatility and heavy sector concentration, with more than half of its assets in the top 10 holdings.
“We don’t recommend this fund because it’s extremely risky and its portfolio turnover is very high,” warned Dan Culloton, analyst with the Morningstar Inc. research firm. “It has a terrible record, and its manager has been changed, which are two red flags that should warn you off this fund.”
Q. What options do I have to reverse a Roth individual retirement account? My original idea was to pay the taxes five years ago and not have to pay on future gains. Look what happened! My losses have been significant, and I would like to know if it’s possible to undo this.
–P.L., via the Internet
A. You can’t do it because you opened your Roth too long ago.
With any Roth IRA, you only have until Oct. 15 of the following year to change your mind and “recharacterize” it back to a traditional IRA. That deadline is the same whether or not you filed your tax return on time or filed for an extension.
“However, if your Roth IRA has had such an extreme loss that you’re willing to withdraw everything, you may be able to take a miscellaneous itemized deduction that’s subject to the 2 percent adjusted gross income limit,” said Ed Slott, CPA and publisher of Ed Slott’s IRA Advisor (www.irahelp.com), Rockville Centre, N.Y. “The good thing is that you would get the entire loss because it’s not treated as a capital loss, which limits you to $3,000 against other income.”
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Andrew Leckey answers questions Sunday in Business and Tuesday in Your Money. Address inquiries to Andrew Leckey, P.M.B. 184, 369-B Third St., San Rafael, CA. 94901-3581 or by e-mail at andrewinv@aol.com.
