Fund Observer
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How to Navigate a Slow-Growth Economy
Continue reading… 0 CommentsAfter the dust clears from the furious rally in stock prices, what will happen next? It's the question in the back of every investor's mind, and the answer could be far from encouraging. The way many economists see it, the market is headed for a sustained period of slow growth as the tepid borrowing environment and sluggish employment prospects balance out the recent rash of enthusiasm.
For investors, this turning point in the market provides ample reasons for tempered expectations. But even amid a slowdown, there are a number of opportunities for solid returns. Here are some tips for navigating a slow-growth economy.
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Why Asia Once Again Favors Long-Term Investors
Continue reading… 0 CommentsAfter months of favoring speculative gambits, the momentum of the Asian markets is returning once again to the hands of the long-term investor, says Robert Horrocks of Matthews International Capital Management. Citing a reduction in the valuation gaps between Asia and the rest of the world, Horrocks says investors should start focusing on fundamental earnings potential rather than on market timing.
[See Can Japan Stage a Comeback?]
In this shifting climate, Horrocks, the chief investment officer at Matthews, which runs 10 Asia funds, sees plenty of opportunities for investors with lengthy time horizons. In particular, he says that Asia is especially attractive for investors seeking dividends. Meanwhile, as the Asian economy continues to become more efficient, Horrocks foresees problems for the materials industry, but he remains optimistic about consumer staples, which over time will benefit from rising household incomes.
In a recent interview with U.S. News, Horrocks laid out his forecasts for the continent and talked about where investors can find long-term profits. Excerpts:
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Is 'Jones v. Harris Associates' a Referendum on Mutual Funds?
Continue reading… 0 CommentsAs the Supreme Court mulls over mutual funds' fees, analysts have lined up to read between the lines. And while a decision in Jones v. Harris Associates is probably months away, there is no shortage of opinions about its implications.
On its surface, the question at the heart of the case is narrowly constructed: Should courts intervene when investors claim that asset managers' fees excessively favor certain clients? In particular, the plaintiffs are shareholders in the Oakmark funds, which are run by Harris Associates. The Oakmark shareholders say that at the time they filed the suit in 2004, they were being charged management fees nearly twice as high—0.88 percent vs. 0.45 percent—as those assigned to Harris's institutional clients.
Still, this veneer of simplicity hasn't prevented an outpouring of speculation as to how potential outcomes could affect the broader financial industry. With that in mind, U.S. News takes a look at three of the most common claims and examines how likely the suggested impacts are to materialize. This is the last article in a three-part series.
[See Part I: How the Supreme Court May Make Mutual Funds More Expensive and Part II: Why the Mutual Fund Case Isn't About Executive Pay.]
Claim: This case highlights the structural weaknesses of mutual funds. Disputes over mutual fund fees are hardly uncommon. Actually, the tendency of expenses to gradually erode returns is perhaps the biggest complaint that investors have about their funds. But while these discussions were previously relegated to dinner-table banter or buried in congressional bills, this case has propelled them into the national spotlight at a time when investors were already smarting from disastrous 2008 returns.
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Why Mutual Fund Case Isn't About Executive Pay
Continue reading… 0 CommentsAs the Supreme Court mulls over mutual funds' fees, analysts have lined up to read between the lines. And while a decision in Jones v. Harris Associates is probably months away, there is no shortage of opinions about its implications.
On its surface, the question at the heart of the case is narrowly constructed: Should courts intervene when investors claim that asset managers' fees excessively favor certain clients? The plaintiffs are shareholders in the Oakmark funds, which are run by Harris Associates. The Oakmark shareholders say that at the time they filed the suit in 2004, they were being charged management fees nearly twice as high—0. 88 percent vs. 0.45 percent—as those assigned to Harris's institutional clients.
[See Retail Investors Get Their Day in High Court.]
Still, this veneer of simplicity hasn't prevented an outpouring of speculation about how potential outcomes could affect the broader financial industry. With that in mind, U.S. News takes a look at three of the most common claims and examines how likely the suggested impacts are to materialize. This is the second of three articles. The first appeared yesterday; the next will run tomorrow.
[See Part I: How the Supreme Court May Make Mutual Funds More Expensive.]
Claim: This is a case about executive compensation. Ever since the Supreme Court agreed to hear Jones v. Harris Associates, onlookers have been quick to link it to the heated public debate about executive compensation. In fact, coverage of the case has consistently couched the proceedings in the context of the uproar over the lifestyles of the heads of struggling companies like American International Group and General Motors.
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How the Supreme Court May Make Mutual Funds More Expensive
Continue reading… 0 CommentsAs the Supreme Court mulls over mutual funds' fees, analysts have lined up to read between the lines. And while a decision in Jones v. Harris Associates is probably months away, there is no shortage of opinions about its implications.
On its surface, the question at the heart of the case is narrowly constructed: Should courts intervene when investors claim that asset managers' fees excessively favor certain clients? The plaintiffs are shareholders in the Oakmark funds, which are run by Harris Associates. The Oakmark shareholders say that at the time they filed the suit in 2004, they were being charged management fees nearly twice as high—0.88 percent vs. 0.45 percent—as those assigned to Harris's institutional clients.
[See Retail Investors Get Their Day in High Court.]
Still, this veneer of simplicity hasn't prevented an outpouring of speculation as to how potential outcomes could affect the broader financial industry. With that in mind, U.S. News takes a look at three of the most common claims and examines how likely the suggested impacts are to materialize. This is the first of three articles. The next two will appear Tuesday and Wednesday.
Claim: The Supreme Court's decision could inadvertently make funds more expensive to own. In jumping in to referee a tense dispute in the Seventh U.S. Circuit Court of Appeals, the Supreme Court could create a new rubric for evaluating mutual fund fee disputes. If that happens, some fear it would trigger a wave of litigation as mutual funds and investors spar in court to test the standard's limits. This, in turn, could drive up expense ratios over time as funds pay to defend themselves, which would be an ironic twist of events for the plaintiffs in this case, who are seeking lower fees.
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ETFs: A Simple Solution for Small Investors
Continue reading… 0 CommentsFor those without a lot of cash—or just starting out—exchange-traded funds offer a simple, low-cost way to invest and gain instant diversification.
ETFs look like mutual funds, yet behave in some ways like stocks. Similar to index mutual funds, most basic ETFs are passive investments that don't require a manager and therefore don't charge high fees (in many cases, ETF expenses are lower than those of index funds). Investors can also buy as little as one share of an ETF, whereas mutual funds often require minimum investments of $1,000 and up. Like index funds, ETFs mirror an index, but they can be traded all day on an exchange like stocks. Another plus: Since they track a particular index, investors can easily find out what stocks (or bonds) they hold.
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The Great Rebalancing Debate
Continue reading… 5 CommentsWhen is it appropriate to rebalance a portfolio? This question, a close companion of the ever-popular "How high is too high?" dilemma, has plagued investors for years, largely because there is no right answer. But if you're open to suggestions, a relatively new Website wants to send them directly to your inbox—for a fee.
[See A New Way to Invest?]
MarketRiders, which launched in May after a test run that began in early 2008, has been touting its ability to boost clients' returns on exchange-traded funds by helping them optimize asset allocation. In a recent release, the company says its rebalancing strategy gave investors in one of its bond-heavy model portfolios the chance to more than double their returns—from 2.37 percent to 5.05 percent—during the turbulent 12-month stretch that wrapped up at the end of September.
[Also see 5 Steps to Set Up a Retirement ETF Portfolio.]
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Study Shows Increases in Mutual Fund Fees
Continue reading… 1 CommentIn a double whammy for investors, stock funds became marginally more expensive to own even as their value plummeted during the bottoming out of the market, according to new data from Lipper. Specifically, stock funds' expense ratios increased by an average of 5.2 basis points, or .052 percent, between Nov. 1, 2008, and June 30, 2009. During that eight-month window, annual fees for sector-specific funds rose at disproportionately high levels compared with other types of stock funds. Meanwhile, reduced fees for money market funds and relatively steady charges for fixed-income funds helped balance out some of these increases.
[See Study Shows Investors Pass Over Expense Ratios.]
The Lipper study examines funds whose fiscal years wrapped up between Nov. 1, 2008, and Jan. 1, 2009. For nearly 1,500 of those funds, Lipper compared how their expense ratios changed from their annual reports at the end of fiscal year 2009 to their semiannual reports, which came out between April 30 and June 30 of this year. After throwing out outliers on either end of the spectrum, analysts arrived at the final numbers. In identifying the fee increases, Lipper pinpointed a trend that is common during downturns: As funds' asset bases shrink, each individual investor becomes responsible for a larger portion of the operating costs.
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Survey Shows Investment Advisers Feel Closest to American Funds
Continue reading… 0 CommentsFeeling overwhelmed by mailings from your mutual funds? According to a new study, your investment adviser may have the same complaint. In a nod to quality over quantity, Cogent Research has found that fund providers don't need to overload advisers' inboxes in order to earn their appreciation.
According to the Massachusetts-based research group, advisers—who serve as the middlemen between providers and investors—feel the most connected to American Funds. Cogent also found that American reaches out to advisers less frequently than the industry average. On the other hand, John Hancock and Evergreen topped the charts for frequency of contacts but didn't crack the top-10 list of fund families to which advisers felt the closest.
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The Case for Concentrated Funds
Continue reading… 0 CommentsThe famous volatility of concentrated stock funds is paying off big time, at least for now. So far this year, stock funds with fewer than 40 holdings have made a strong rebound. With an average return of 25 percent, they are beating funds with more than 40 stocks, which had returned an average of 21 percent as of October 31, according to Morningstar.
Over the long run, however, there is no clear winner between concentrated funds and more diversified funds that spread their bets among a larger number of stocks, says Karen Dolan, director of fund analysis at Morningstar. According to Morningstar data, the average five-year annualized return for funds with 40 or fewer stocks is 1.06 percent, very close to the 0.91 percent return for funds with more than 40 stocks.
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TSP's Mutual Fund Window Gets Icy Reception
Continue reading… 1 CommentWith the passage of tobacco regulation earlier this summer, Congress closed a number of doors. Several months later, regulators are deciding whether to open a window.
At a hearing Tuesday, members of the House discussed the possibility of allowing federal employees to put their retirement money in mutual funds. This consideration stems from the 2009 Family Smoking Prevention and Tobacco Control Act, which authorizes a so-called mutual fund window for the Thrift Savings Plan.
As part of the tobacco bill, Congress gave the administrators of the TSP, which is essentially a 401(k) plan for federal employees, the option to allow participants to invest in preapproved mutual funds. But given the icy reception the concept received from lawmakers and union representatives alike on Tuesday, it appears unlikely to gain much traction.
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Retail Investors Get Their Day in High Court
Continue reading… 0 CommentsSome mutual fund investors fed up with what they believe to be excessive fees had their day in court Monday—the Supreme Court. In oral arguments in the case of Jones v. Harris Associates, retail shareholders of Oakmark Funds said the fund's adviser, Harris Associates, charged them fees that were twice as high as they charged other types of investors, such as institutional customers, but provided essentially the same services.
[Congress is considering a proposal that could change the way funds do business with new investors.]
The core legal issue in the case is whether Harris Associates, as the adviser to Oakmark Funds, breached its fiduciary duty under the Investment Company Act of 1940 by charging excessive fees. The shareholders were, in effect, asking the court to consider whether the adviser committed a breach of its fiduciary duty when the board of Oakmark Funds voted for what the plaintiffs consider an overly generous fee structure. The ICA was amended by Congress in 1970 to include a rule regarding fiduciary duty for mutual funds related to compensation, but exactly what constitutes such a duty was never defined. The case highlights the question of whether or not courts should intervene in issues related to executive compensation.
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Target-Date Funds Go Under the Microscope
Continue reading… 0 CommentsAs retirement-age workers scramble to pick up the pieces from the downturn, Congress is putting target-date funds under the legislative microscope. At a hearing yesterday, senators expressed concern about the costs and structure of the funds, which are common options in 401(k) plans. In particular, they mulled over the possibility that target-date funds, also referred to as life-cycle funds, do not disclose enough information and that their management style lends itself to conflicts of interest.
[See Many Target-Date Funds Miss Their Mark.]
The portfolios of target-date funds typically start out with significant stock exposure and shift to more conservative fixed-income holdings as investors near retirement. They have ballooned in popularity since 2006, when employers got the option to make target-date funds the default investments in their workers' retirement plans. During last year alone, target-date funds saw $57 billion in new investments.
[Also see 7 Tips for Investing in a Target-Date Fund.]
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Mutual Funds Singled Out in Proposal
Continue reading… 1 CommentIn a move that has raised eyebrows in the financial community, Congress is considering a proposal that could alter the way mutual funds do business with new investors. Specifically, funds could face more stringent requirements regarding the information they must provide to prospective customers.
[See Kanjorski Discusses Hedge Fund Regulation.]
While the proposal, part of the Investor Protection Act of 2009, is designed to increase transparency, mutual fund lobbyists have called foul because the measure doesn't apply to any other type of security. This imbalance, they fear, could give a slight edge to similar vehicles such as annuities and separately managed accounts, which could become more attractive to brokers looking to avoid extra paperwork.
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4 Small Caps With Room to Run
Continue reading… 0 CommentsWith investors still cautious about the third-quarter rally, small caps have seen mixed results over the past few days. While smaller companies often charge to the head of the pack at the beginning of a recovery, they stalled earlier this week as investors pondered the health of the larger names that drive the market. Still, the Russell 2000, which tracks small caps, is up by 22.4 percent year to date.
[See 5 Myths About the Economic Recovery and Why Small Caps Are Sizzling.]
To get a sense of what small companies are looking attractive, U.S. News spoke with Sam Dedio, manager of the Artio U.S. Small Cap fund, which has gained 66.5 percent year to date. As small caps bottomed out during the credit crisis, Dedio picked up some debt-ridden companies that later surged when investor confidence began to rebound. Those gains have complemented his traditional strategy, which focuses on solid cash flows and market-changing innovation.
Here are some companies that Dedio says have strong fundamentals and room to run:
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A New Way to Invest?
Continue reading… 0 CommentsWith the release of a new product this week, kaChing wants to help you to invest like a genius. But will its idea, which is intended to uproot the traditional mutual fund model, take hold?
[See Should You Deep-Six Your Mutual Fund?]
Since last year, kaChing's Website has allowed the average person to track the holdings of a select group of investing "geniuses" with strong track records. Monday, the company began to allow users willing to commit at least $3,000 to actually mirror the trades of those investors.
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Brazil to Tax Foreign Investors
Continue reading… 0 CommentsWith news Monday that Brazil will impose a tax on foreign purchases of its debt and equity, stocks in the surging Latin American giant have taken a sharp hit. This decline has tempered enthusiasm about the red-hot MSCI Emerging Markets Index, which was up 73 percent year-to-date before Tuesday's outflows from Brazil.
To get a sense of what the new 2 percent tax, which went into effect Tuesday, means for investors with positions in Brazil, U.S. N ews spoke with Josephine Jiménez, manager of the emerging markets fund Victoria 1522. In recent months, her fund has shifted a large chunk of its portfolio into Brazil while dialing back its positions in China because of concern about the country's efforts to slow loan growth. Currently, about 34 percent of the fund's assets are invested in Brazil.
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Do Investors Need Protection From Themselves?
Continue reading… 3 CommentsYou've heard the old mantra "buyer beware." But now, with strains of consumer protectionism re-emerging in the market, get ready for "buyer be saved." Vanguard recently closed its top-performing fund, and one of its stated reasons was to protect consumers—from themselves.
"Despite our efforts—at both a company and an industry level—to educate investors about the perils of performance-chasing, we continue to be concerned about this behavior," Vanguard CEO Bill McNabb said in a statement announcing the closure of the Capital Value fund to new investors. "Closing the fund for a cooling-off period serves two purposes," he continues. "First, it protects existing shareholders from higher transaction costs that can result from short-term-oriented investors moving in and out of the fund. Second, it protects prospective investors from themselves, as high-performing funds will almost certainly drop off at some point."
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Kanjorski Discusses Hedge Fund Regulation
Continue reading… 5 CommentsAs Congress looks to reshape the country's battered financial sector, hedge funds have emerged as a key puzzle piece. And nearly a year after disgraced financier Bernard Madoff's Ponzi scheme ran out of gas, legislators are considering draft proposals that would tighten the leash around the secretive industry.
[See Judge Upholds Advertising Rules in Hedge Fund Case.]
The drafts, released by Democratic Rep. Paul Kanjorski of Pennsylvania, would require private pools of capital with more than $30 million in assets to register with the Securities and Exchange Commission, with an exception for venture capital funds. Practically, this would mean that affected funds would have to disclose information about their fees, risks, trading practices, and other elements of their business.
In an apparent attempt to "hedge" their bets and avoid further intervention, fund lobbyists have supported registration. This marks a rare concession from an industry known for jealously guarding its private status.
Meanwhile, Kanjorksi's drafts would also allow the SEC to ban mandatory-arbitration clauses in brokerage contracts. Separately, legislators have long been considering a similar bill, the Arbitration Fairness Act, which proposes that Congress make the clauses unenforceable. By leaving the decision up to the SEC, Kanjorski is hoping to strike a middle ground.
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Time to REIT-urn to Real Estate?
Continue reading… 0 CommentsIn the wake of the subprime mortgage crisis, real estate has been a taboo sector. Still, even as some investors continue to associate real estate with the worst of the downturn, shares of real estate investment trusts (REITs) have been on a roll recently.
After a strong third quarter, the Dow Jones Composite All REIT Index is up 11.85 percent so far this year, and as the Wall Street Journal noted recently, REIT stocks are trading at a premium to their underlying assets for the first time since the real estate downturn began.
