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Mutual Funds

Testing Its Mettle

Leuthold's bet on industrial metals hits an unexpected snag.

Leuthold Core Investment (LCORX) doesn't shy away from investing in unusual assets. The fund's long-term record, with annualized gains of nearly 12% since its 1995 debut, is proof that moxie pays off. But the implosion of Refco, the giant commodities firm, highlights the risk of putting money into esoteric investments.

Leuthold added metals to the fund in 2004. We're talking about the real stuff -- copper, zinc and the like -- tucked away in warehouses, as well as investment contracts based on the metals. The rationale: global demand, especially from China, would continue to outstrip supply.

It was a good call. Unfortunately, the metals stake -- almost $80 million, representing about 6% of the fund's assets -- was held by Refco entities and became entangled in Refco's bankruptcy mess. In early December, the fund was appraising those assets at just over $60 million, and there's no telling how much it will recoup.

We wrote favorably about the fund last September. New buyers should wait to see how the Refco situation shakes out. But those already invested shouldn't panic. The good news is that even with the haircut the fund took on part of its metals stake, it still gained 12% in 2005 through November. But additional write-offs of the fund's Refco exposure are possible.