Money Management Executive Latest News

You've got to hand it to Morningstar for sending a strongly worded comment letter to the Securities and Exchange Commission on the validity of independent fund board chairmen-especially as SEC Chairman Christopher Cox appears ready to capitulate on the long-contested issue.

OppenheimerFunds CIO To Also Serve as President

Legg Mason Launches Corporate Branding Ads

Environmental and human right issues have sparked a renewed interest in socially responsible investing (SRI), and, as a result, assets in these funds will reach $2.5 trillion this year, up 10% from $2.3 trillion in 2005. Over the last decade, assets in SRI funds have grown 12.3% on average per year.

Think all of the interesting international equity sectors have already been tapped? Not so fast, says Ted Pollak, founder and chief investment officer of EE Fund Management of San Francisco. His firm has created the first international equity index focused on the electronic entertainment/video game industry, which has come a long way since the industry's first, now-primitive, game Pong.

Susan M. Olson has been named senior counsel of international affairs at the Investment Company Institute. Olson replaced Bob Grohowski, senior counsel of securities regulation, who moved to his new post a few months ago. Olson will serve as ICI’s lead counsel on a broad range of global issues facing mutual funds. She is set to represent the Institute and the industry before the World Trade Organization, the International Organization of Securities Commissioners and foreign regulators and legislators. Additionally, she will lead ICI’s efforts to help U.S. mutual funds comply with anti-money laundering regulations. Olson, a 10-year veteran at the Securities and Exchange Commission, most recently served as senior counsel in the international branch of the SEC’s office of the chief counsel. She worked on resolving issues arising under the Investment Company Act and the Investment Advisers Act and provided guidance for trade negotiations. Prior to the SEC, Olson worked for the Washington, D.C. office of McGuireWoods.

Mutual funds are utilizing popular and successful investment strategies from hedge funds more and more, according to the Economist. There are three types of mutual funds that show hedge fund like characteristics that Todd Trubey, an analyst at Chicago-based Morningstar distinguishes. “Market-neutral” funds aim to make money in bad times as well as good; however, Trubey notes that it is hard to squeeze worthwhile returns from such a strategy without the leverage hedge funds have. The “equity long-short” strategy is much more ambitious and involves bets on the direction of individual stocks. Shorting stocks is a risky game that can have offer huge returns for some or be unsuccessful for others. Lastly, “funds-of-funds” approach combines a number of strategies in a one product. Several invest in different hedge funds and some mutual fund managers can gain access to unique accounts set up for them special by hedge-fund managers. However, financial specialty comes at a price and the high fees of hedge funds are seeping into the mutual-fund arena. So far, the specialty products account for a tiny share of the $20 trillion global mutual fund market. The overlap can only go so far though as the two products appeal and are marketed to different audiences. Mutual funds are heavily regulated and are geared towards retail investors. As hedge funds target the ultra-rich and institutional investors. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

Gold has typically been able to hedge against losses in times of financial crisis, or economic uncertainty, but traders’ views on the metal might be shifting, according to MarketWatch. “The gold market has thus far been frustratingly unable to summon its historical safe-haven attributes,” said Jon Nadler, an analyst at Kitco Bullion Dealers. “When you have bullion moving in tandem with equities, you have to scratch your head,” he said. And “the last thing the traditional buyers want from gold is for it not to perform when the going gets tough in paper assets,” he said. The way gold is bought and sold has expanded, and the diversity has been good and bad, feeling a very volatile trading environment. Options have increased and “today investors have a wide variety of exchange-traded-funds, hedge funds, mining shares and a myriad of futures and options contracts all the globe,” said Kevin Kerr, editor of Global Resources Trader. However, “what’s happened is that gold has moved from being a beneficiary of a stock market sell-off to a victim,” he said. “The apparent quest for liquidity among global investors has made gold a victim to its on recent success,” Nadler said. But, Amaury Conti, an equity trader at San Antonio, Texas-based Austin, Calvert & Flavin, doesn’t believe the view of gold has changed, it’s the way to trade it that’s different. “Gold will go up in uncertain times as it usually does, but now the ability for a trader to sell the ETF and go short has changed the liquidity and risk dynamics of the asset,” he said. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

The recent market turbulence will put to the test theories of whether hedge funds actually cause bigger swings, or whether the unregulated entities can truly offer safe harbors within a storm, according to Bloomberg columnist Chet Currier. “If credit turmoil spreads from the carnage in the subprime mortgage business, hedge funds stand to become the featured players in a heroes-or-villains drama,” he worte. “Should the shake-up that began in late February turn into a messy, drawn-out affair, hedge funds are handy candidates for blame.” Hedge funds have a reputation as so-called carry trades, through which they borrow money someplace cheap—for example the Japanese money market—and invest it for a higher return elsewhere. If, on the other hand the storm passes quickly, hedge funds could be the heroes, since they can act quickly and play the market unfettered from all sides, Currier said. Also, unlike the typical investors, hedge fund managers burned by market swings don’t get market shy; they get active. The 1.4 trillion industry pales in comparison to the $10.5 trillion U.S. mutual fund market, but mutual funds are far more fettered and unable to make the same types of big, quick moves as hedge funds. In fact, data from the Investment Company Institute shows that the average mutual fund has only 4% of its assets in liquid cash. Likewise, private-equity funds draw mainly from borrowed money, and that money disappears during credit crises. Also, hedge fund managers are rarely subject to the security loyalty that plagues many other investors, especially those with securities they may have had for decades. “Hedge-fund managers have often been portrayed not merely as dispassionate, but as pitiless self-seekers wielding frightening amounts of power,” wrote Currier. “A measure of cold calculation may be just what is wanted when most investors get caught up in the emotions of a turbulent market. While the herd is stampeding in one direction, nobody is better equipped than hedge funds to get a little movement going the other way.” The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

The market squall set-off by subprime mortgages has not stopped Barclays from a Friday launch of its new mortgage-backed securities-based ETF, MarketWatch notes. Although the American Stock Exchange launch comes in the midst of concerns about mortgage-linked securities, the iShares Lehman MBS Fixed-Rate Bond Fund may be well insulated, analysts said. Still, it will have to overcome public perception to prove its place in investors’ portfolios. "These are not subprime mortgages and I wouldn't classify this ETF as a risky security," Greg McBride, senior financial analyst at BankRate.com, told MarketWatch. Subprime loans typically target lower-income house hunters who cannot meet the credit score and other requirements of other banks. With an expense ratio of 0.25% the new ETF instead tracks an index of investment grade fixed-rate mortgage-backed securities by government-sponsored mortgage issuers Ginnie Mae, Freddie Mac, through which all principal and interest go directly to investors and which are non-convertible. The underlying investments are 30, 20 and 15-year securities with more than $250 million in outstanding face values, according to Barclays. Rather than hold all 387 securities within the Lehman index as of February, Barclays Global Investors will use that group as a benchmark. Mortgage-backed securities can be high-yield as managers compensate investors for times when interest rates are low, and home-owners pay loans early, refinance or buy newer, bigger houses. Such events introduce uncertainty, and result in a drop in fund value, according to the ETF’s prospectus. "Because of prepayment and extension risk, mortgage-backed securities react differently to changes in interest rates than other bonds," the prospectus notes. "Small movements in interest rates (both increases and decreases) may quickly and significantly reduce the value of certain mortgage-backed securities." Some think the new ETF can’t avoid the sector fall out, though. "If real estate is all about location, and the stock market is all about timing, then this fund is wrong on both counts," said Jim Lowell, editor of MarketWatch's ETF Trader. Still, timing the launch of a new, regulated, product is always a challenge, and Matt Tucker, head of Barcalys investment solutions team, said that the firm’s interest is not in launching finds to meet fads anyhow. Instead the new product helps toward "filling holes" in its fixed-income product line, Tucker said. The firm now manages 15 fixed-income ETFs. Barclays is also trying to beat competitor Vanguard to the punch, and to protect its market dominance, which was earned, largely, though first-mover advantage. Some stress the need for such a high-yield product for investors seeking diversity. "These aren't the junk mortgages you read about in the papers," said Matt Hougan, editor at IndexUniverse.com. "Fannie, Freddie and Ginnie mortgages just don't have that much risk, even with the housing market imploding," he said, adding that the historical volatility of the ETF's tracking index has been "tiny." Herb Morgan, head of Efficient Market Advisors, said "there's a market" for a mortgage-backed securities ETF and expects the fund to pick up solid asset flows and trading volume. However, the new ETF could suffer from "headline risk" because even though the worries in subprime shouldn't impact the holdings, those fears will affect how the ETF is perceived, said Morningstar Inc. analyst Sonya Morris. "This ETF is fairly conservative for a mortgage-backed securities fund since the agency-backed mortgages must meet credit requirements," said Morningstar Inc. analyst Sonya Morris. The ETF could be used to diversify exposure to the bond market, and it "makes sense to own high-quality mortgage bonds" as part of a long-term portfolio, Morris said. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.