Portfolio

Growth fund managers typically seek out companies whose earnings increase 10% or more a year, but with the economy sagging, those managers are applying metrics they’ve never used before, The Wall Street Journal reports.

With stocks now worth less than 55% of their peak in October 2007—a decline of $11.1 trillion in market wealth—investor sentiment has been shattered and some market experts believe the process of finding the market bottom must begin all over again.

Investors who brought large balances to the table at brokerages or mutual fund companies have enjoyed breakpoints over the past few years. But with the market declining, many of those breakpoints will no longer apply, The Wall Street Journal reports.

Hedge fund executives are bracing for a dramatically different outlook on their industry in the year ahead, with 84% expecting increased competition, 82% bracing for increased costs and 99% believing regulation is inevitable.

Equity mutual funds suffered redemptions in 2008, only the third time in their history that they have had outflows. Actively managed funds lost $221.08 billion, while index funds took in $17.6 billion. "Some people who get their hands burned by these market drops move from active to passive [management], and every time some of them stay there," Scott Burns, an analyst with Morningstar, told Dow Jones. Passive investing "gains more converts" each time the market crashes.

Investors continued to seek safety in cash as money market mutual fund assets crept closer to $4 trillion, rising $17.94 billion for the week ending March 4 to $3.906 trillion, according to the Investment Company Institute.

Justin Leverenz, manager of the Oppenheimer Developing Markets fund, says emerging market economies are more agile than developed nations, and will likely soar out of the recession.

In response to the market downturn and wide confusion among investors about what they should do, Charles Schwab has published a number of articles on its website offering guidance. Schwab is also holding seminars at its branches, town hall discussions and webcasts.

For the first time in seven years and after the sorry lessons of Enron and WorldComm, investors poured more money into company stock, $65 million, than they did any other investment category in January, according to Hewitt Associates.Betting on one’s own company’s success at a time of massive job layoffs is not seen as a terribly wise decision. “In this economy, you’d expect people to move in the other direction, trying to diversify their risks,” Pamela Hess, director of retirement research told The Wall Street Journal.“Obviously, they’re not understanding what they’re buying,” added Shlomo Benartzi, an economics professor at the University of California, Los Angeles.Today, two-thirds of employees in 401(k)s with more than 5,000 employees are offered company stock, and about 8% of employees invested in company stock have 80% of their portfolios invested in it.It is possible that instead of matching employee’s contributions in 401(k)s, employers are offering stock, experts said.

Legg Mason announced Thursday that it has sold all $1.8 billion of the structured investment vehicles held at par value by its money market funds, the company and through a total return swap with a bank. The sale includes $1.4 billion of SIVs held by the money funds, $57 million by the company and $355 in the swap. All told, Legg Mason spent $1.2 billion on the transactions. It retains only $49 million in SIVs.“With the sales announced today, our money market funds are now completely SIV-free,” said Legg Mason Chairman and CEO Mark R. Fetting. “We are pleased that our business teams were able to resolve this issue and protect our money market franchise while our investment teams have focused on [their] goal of providing principal stability, credit quality and current income.”Fetting added: “In persistently difficult markets, we took this final proactive step not only to resolve the SIV issue, but also to keep our balance sheet strong. With the expected tax refund, we will have $1 billion in available cash” which will help “protect Legg Mason’s profitability.”