Short Interests: A separate piece for Morningstar

Morningstar Inc. is developing a product to analyze separate accounts similar to the way it evaluates mutual funds.

As the separate-accounts business grows to a trillion dollars in the next five to seven years, from $300 billion, financial advisers with rich clients need tools for separate-account research, says Morningstar managing director Tom Florence.

“The key is to look at it from a quantitative basis and qualitative basis,” he says. “You look at these managers based on how they’re doing and the characteristics of their portfolios, and you look at it from a qualitative perspective to understand what is behind the numbers that is causing that firm to be successful or not successful.

“The neat thing,” Mr. Florence adds, “is if we do that and look at portfolio holdings, you can compare separate-account portfolios against mutual fund portfolios.”

Though separate-account information is harder to obtain because it’s not public information, he says separate-account managers are “going to want to promote what they’re doing with their portfolios.”

Morningstar was not quite prepared to go public with the details of the product, but Timothy Armour of the Chicago fund tracker mentioned it last week at Putnam Lovell’s New York financial services conference, reports sister publication Pensions & Investments.

As to when the product will be available, Mr. Florence says that that can’t be pried from him yet.

Merrill launch out to lunch

The Merrill Lynch Internet Strategies Fund had its first birthday last month. Did anyone pop the champagne cork?

The fund, launched with a staggering $1.1 billion in assets, fell 77.2% from its inception through the end of March. It opened March 22, 2000, a little more than a week after the Nasdaq Composite Index peaked.

Its manager, Paul Meeks, has whittled down the portfolio, according to the annual report it released last week. In July, the fund had 67 companies in the portfolio. By the end of January, there were 47.

Assets had dropped more than 75% to $280.8 million by Feb. 28.

Gone are some of the darlings of the Internet boom. Priceline.com Inc., InfoSpace.com Inc. and Go2Net Inc., for example, were all cut.

The fund has been a disappointment, says one analyst. Despite its mountain of cash, it’s done a bit worse than the average Internet fund. “This fund came awfully late to the party,” says Morningstar’s Christopher Traulsen.

No market timer

Ted Charles, the head of Investors Capital Corp., was smiling one day late last month. That morning, he had experienced a first: He had rung the bell to open trading at the American Stock Exchange.

His Lynnfield, Mass., independent broker-dealer made its debut on the Amex on Feb. 8. Its initial public offering of 1 million shares opened at $6. The young stock’s high was $8, and its low was $5.20, which it hit March 30. It was trading slightly higher at midweek, at around $5.50.

“We were happy,” he says of his day in the spotlight at the Amex. But with a nod to the bear market, he adds, “It was just a tough time to launch an IPO.”

The new public company is Investors Capital Holdings Ltd. Its symbol is ICH.

Mr. Charles, who is a majority shareholder, has goals to expand the firm. Like many executives in the broker-dealer world, he says he wants to boost the firm’s number of reps, currently about 1,200. He wants to bring that number to 2,500 by 2003.