Free mutual fund shares: It sounds too good to be true. But Shlomo Eplboim is indeed giving away shares of his Blue & White Fund, which has gained nearly 32% since it opened in February, 2003. Naturally, there's a catch. The recipient must be an American boy or girl celebrating a religious rite: a first communion, confirmation, bar or bat mitzvah. Meet that criterion, and Eplboim will provide a certificate worth $18 in fund shares. The number 18 is important. In Hebrew, the letters that make up 18 also spell chai, which means "life."
Eplboim, 32, certainly can be called a mensch -- Yiddish, for an admirable person. But he's not giving away fund shares simply to congratulate kids he doesn't know. He's hoping they'll get interested in investing and hook their parents into adding money to the free accounts. More important, he wants to entice people to invest in Israel.
For decades, the most popular way to support Israel was to buy Israeli bonds, which funded public works projects. "Israel doesn't need another highway," says Eplboim, a Tel Aviv native now living in Los Angeles. "Israel needs private investment."
A global rebound should be a boost to Israel, since 90% of Israeli public companies' revenues come from beyond the tiny nation's borders. After the worst recession in its history, rising technology and defense exports along with lower tax rates are expected to fuel economic growth of at least 3% in 2004. But the geopolitical challenges and market risks are immense. Continued violence between Israelis and Palestinians, along with an unstable Middle East, threaten to derail the economic rebound. That's why the fund can invest up to 100% of its assets for one year in cash. Right now the cash position is 37%, but that's mainly to buy initial public offerings, Eplboim says.
Most of the companies in the portfolio, including generic drugmaker Teva Pharmaceutical (TEVA ) and software maker Zoran (ZRAN ), trade in the U.S. as American depositary receipts. The fund can also put up to 25% of its assets in companies listed only on the Tel Aviv Stock Exchange. Blue & White's main competition is the $12 million Amidex 35, an index fund that invests in Israel's 35 largest companies.
FREE BUT NOT CHEAP
Eplboim, a former PaineWebber and Prudential (PRU ) broker, now is a partner at Eplboim Poutre, a Beverly Hills brokerage firm with $100 million in client assets. Eplboim is funding the giveaway himself and figures he has spent more than $5,000 since the program began in March. The expense ratio of 2.81% for Class A shares is higher than average, but it should drop as the fund grows. The $4.4 million broker-sold fund doesn't yet have a ticker symbol.
The Blue & White Fund is available in some 25 states, including California, New York, New Jersey, and Florida. To receive free shares, just go to the company's Web site (blueandwhitefund.com) and click on "Free Chai Certificate" for an application. You can also call 877 4BW-FUND. When you return the form, you'll need to provide an invitation to the religious event or a letter from a clergy member as proof.
Russell Kinnel, director of research at fund tracker Morningstar, can't think of another fund family that has given away shares. That said, small accounts have been "murder" on fund companies because they're expensive to maintain. "The idea that people later will invest more often doesn't work," Kinnel says.
The firm has received "thousands" of applications, say Eplboim. "We are mailing machines." He has gotten requests from a 6,000-member synagogue in New York's Catskill Mountains as well as an Evangelical church in Louisiana. Eplboim says he'll close the fund to new investors when it hits $100 million. Until then, he plans to give away shares, hoping those youngsters and their families will invest more cash, too.
By Lauren Young