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Something for Everyone

To Money Manager Kurt Brouwer, Mutual Funds Are the Best Investment Vehicle Around--and That Goes for the Wealthy Too

September 30, 1997|RUSS WILES

Kurt Brouwer believes that no one is too wealthy to invest in mutual funds. He's the president and co-founder of Brouwer & Janachowski Inc., a money management company in Tiburon, Calif., that caters to individuals with at least $1 million (and usually much more) to invest. The firm's approach is unusual--most investment advisors for the affluent suggest individual stocks and bonds, not funds.

Actually, Brouwer and partner Stephen Janachowski see mutual funds as the perfect investment vehicle for all investors, regardless of wealth. It's a theme they build on in "Mutual Fund Mastery" ($20, Times Business), which will arrive in bookstores next month.

Brouwer, 46, is a Michigan native whose early working years were spent as a drug counselor and restorer of musical instruments. He moved to the Bay Area in the early '70s, joining Merrill Lynch as a stockbroker. He and Janachowski, a University of Chicago graduate he met at Merrill, were not comfortable with the commission orientation of the brokerage business and formed their fee-only investment advisory firm in 1985. Today, Brouwer & Janachowski manages more than $500 million in mutual fund assets for clients, charging a maximum 1% annual fee.

Brouwer spoke recently to Russ Wiles, a mutual funds columnist for The Times.

Times: When you founded the firm in 1985, you felt no-load mutual funds were the best way to build client portfolios. Do you still think so?

Brouwer: Definitely. The merits of mutual funds are more obvious to more people today than in 1985. Back then, institutional clients didn't think much of mutual funds. They thought funds were just for small investors.

Times: It appears that your clients don't mind using these common-man investments.

Brouwer: We have accounts in the $70-million-to-$80-million range, and they're exclusively in mutual funds. These clients have come to us and said they want a mutual fund portfolio. Whether you have $500 to invest or $500 million, funds really are the best single investment vehicle.

Times: Why?

Brouwer: Let's say you have $10 million in your account. Even with that much money, it's not easy to develop a diversified portfolio of individual stocks and bonds.

Suppose you want to include a small-stock component in your portfolio, along with large companies, international stocks and fixed income. You can try to find an investment advisor to manage each part, giving him or her $2 million or $3 million to invest. But many of the best advisors require much higher minimums. For example, Pacific Investment Management in Newport Beach, one of the best bond managers, has a minimum account of $75 million. But you can invest in mutual funds that Pimco manages for $1,000 or so.

We want Wall Street's best money managers running parts of client portfolios, but we also see the need to spread money around. Mutual funds are a perfect vehicle for that. You get the obvious advantages of diversification and professional management at moderate cost. You enjoy the added benefit of being able to focus your portfolio in the direction you want, with the ability to make changes almost instantly, at little or no cost. That would be impossible with any other form of investment.

Times: Do you suggest that investors focus on no-commission, or no-load, funds?

Brouwer: Yes. If you're willing to take the time to do some research, you will save money and become a better investor. If you're doing your own research, there's no reason to pay a load.

Times: Do you ever buy stocks or municipal bonds or anything else besides mutual funds?

Brouwer: No.

Times: What are the traits of an ideal fund?

Brouwer: Excellent and stable management would be one. A fund's track record doesn't mean much if the person who built it is no longer there. Some funds are team managed, but usually there are one or two people who are key members of the team. So we watch for excellent and stable portfolio management.

Times: How do you determine excellent management?

Brouwer: You have to look at a fund's track record. You want to see that the manager has been able to add value compared to other funds or an appropriate index for five years or more. It doesn't matter if the manager accomplishes this every year or quarter--in fact, no fund always beats its index.

Incidentally, I have nothing against index funds, which are appropriate for many investors. But if you're going to buy a fund that's actively managed, you need a reason to buy it--either because the manager has achieved a higher return or because he or she manages risk well.

But before you even look at a fund's track record, you need to find funds that match your investment objectives. It's easy for people to get off track. You might read or hear of a great bond fund, for example, but if you're a growth investor, you might not need it.

Times: Do you prefer risk-adjusted ratings like Morningstar provides, or straight performance numbers?

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