Morningstar Gives Three Funds 'F' Grades
RiverSource Investments, American Century Investments and OppenheimerFunds have received "F" grades from a Morningstar analyst for failing to explain recent changes to shareholders and adding to the paranoia of already shaken investors. "It's about stewardship of a fund, but it's also about communication to shareholders," Andrew Gogerty, Morningstar analyst, told Dow Jones. "None of [the moves] were explained." Gogerty said RiverSource, a unit of Ameriprise Financial, failed to explain why it passed on the cost of a transfer agent switch to shareholders.
"I can't tell you the last time a shareholder got stuck with a charge like this," he said.
Usually fund managers absorb these costs when they take over other funds, but a spokesman for RiverSource said shareholders were charged this time because it was a special condition that will save investors money in the future. American Century received Gogerty's failing grade for switching managers without explaining the move to investors, merely calling the conditions surrounding the move "unacceptable." "If you're a shareholder in a great four-star fund, you don't expect a management change," Gogerty said.
Oppenheimer failed investors by not telling them that two of its bond funds had recently taken on extra risk. Oppenheimer's normally stable Champion Income and Core Bond funds saw huge losses in 2008, dropping 78% and 36%, respectively.
"The managers bought complex, off-balance-sheet swap contracts that created a leveraging effect on the funds," Gogerty said. The managers made no attempt to tell investors that the funds were taking on additional risk, he said. An Oppenheimer spokesman said the specific swaps mentioned were widely used by funds in the same categories and had had "outstanding" performance the four prior years.
Fidelity Demotes Poorly Performing Managers
Fidelity Investments is shaking up its stable of portfolio managers who delivered disappointing returns in 2008, The Wall Street Journal reports. In recent weeks, one manager has left the company, two were demoted to analyst and Fidelity is currently trying to reassign two others.
Fidelity is not known for taking such drastic measures, said analysts, some of whom welcomed the actions. "One of our criticisms in the past was that they were too slow to make portfolio manager changes, but Fidelity does seem to have stepped up the pace of that," said John Bonnanzio, editor of Fidelity Insight.
The portfolio manager who left "to pursue other professional opportunities" is Richard Manuel, who ran the Fidelity Select Financial Services Fund (down 54% over the past year through Feb. 5) and the Fidelity Select Home Finance Fund (down 66%).
One portfolio manager who was demoted to analyst is Patrick Venanzi, whose Fidelity Mid Cap Growth Fund declined 44% in the past year.
Others who are gone include Robert Chow, previously manager of the Fidelity Equity Income II Fund, down 42% over the past year; John Porter, previously of the Fidelity Advisor Growth Opportunities Fund, down 46%; and Brent Bottamini, formerly of the Fidelity Latin America Fund, down 48%.
Fidelity Investments Begins Second Phase of Layoffs
Fidelity Investments earlier this month began the second phase of job layoffs that started last year. In this phase, 1,700 people will lose their jobs.
Before the layoffs began last year, Fidelity employed 44,000 people. In the first round of job cuts late last year, Fidelity eliminated 1,300 positions, or 2.9% of its total workforce. The latest round represents 4% of its workforce.
Fidelity spokeswoman Anne Crowley said, "These layoffs are part of the plan our executives announced to deal with the unprecedented worldwide economic downturn which continues to persist in 2009."
She added: "These layoffs and other expense reduction steps we have implemented over the last several months will ensure our company maintains its strong financial status while also continuing to provide our clients and customers with the best products and services."
According to Crowley, Fidelity is giving those being laid off a generous severance package, including access to an outplacement service for three months.
SEC Begins $321 Million Fair Funds Distribution To Alliance Investors
The Securities and Exchange Commission has begun distributing $321 million to the two million Alliance Capital investors who were harmed by market timing. This first installment is a total of $46 million, being distributed to 300,000 investors.
The original case charged Alliance with permitting rampant market timing between January 2001 and September 2003 in its mutual funds, contrary to those funds' public disclosures. In 2004, Alliance paid $250 million in disgorgement and civil penalties.
Then, in 2006 the SEC settled a civil injunctive action against Daniel Calugar and Securities Brokerage, for a total of $153 million. Of this, $70.38 million was set aside to repay Alliance mutual funds investors who Securities Brokerage harmed.
"This fair fund distribution further demonstrates the SEC's commitment to distributing disgorgement and penalties from those who violate the securities laws to the investors they harmed," said Kay Lackey, associate regional director with the SEC's New York office.
Since 2002, the SEC has distributed more than $4 billion to investors through fair funds distributions.
Hedge Fund Bill Won't Publicize Clients
Reports that U.S. Sens. Carl Levin (D-Mich.)'s and Charles Grassley (R-Iowa)'s new bill on hedge fund regulation will force funds to publicize the names of clients are untrue, the senators said.
"Contrary to some press reports, the Grassley-Levin bill to regulate hedge funds does not require the disclosure of hedge fund clients who merely invest in the fund," they said. "Instead, the bill requires disclosure of a hedge fund's beneficial owners who profit from the fees generated in operating the fund. Such ownership information has already been requested and provided on a routine basis for years in the voluntary hedge fund registrations filed with the Securities and Exchange Commission."
The Hedge Fund Transparency Act would require private equity firms with more than $50 million in assets under management to register with the SEC.
Small Employers Still Setting Up 401(k) Plans
The economic turmoil has prompted smaller employers who previously hadn't considered setting up a 401(k) plan to do so in light of the beaten down values, The Wall Street Journal reports.
But these plans are stripped down, without employer matches or automatic ramp-ups.
Even with unemployment running at 7%, small businesses realize they need to be proactive about retaining employees, said Rick Meigs, president of 401khelpcenter.
"Employees want to work for firms that help them meet other life goals like saving for retirement," Meigs said.
A recent survey of 3,000 households by the Investment Company Institute found that 43% of the more than half of those households with a 401(k) plan said they would not be saving for retirement at all if it were not for their workplace retirement plan.
Financial Planners Try To Allay Investors' Fears
Financial planners are spending a lot of time these days trying to allay their clients' fears, the St. Louis Post-Dispatch reports. Anyone who works with a financial adviser most likely has money in the stock market and, therefore, has experienced steep losses in the past year.
But so far, most investors are not blaming their advisers for the market mess. Instead, they are relying on them more heavily.
"If you're not down, you're not investing," said Mike Brown, first vice president at UBS Financial Services. "You must have your money in CDs or cash or under the mattress."
UBS, in fact, is one of the few firms that has been actively reaching out to investors, Brown said. His own message to clients has been to remain calm and unemotional in the face of the financial storm.
"The key to long-term investment success, I think, is to minimize activity and to make investment decisions without emotion, if at all possible," Brown said.
Thomas Eyssell, head of the financial planning program at the University of Missouri-St. Louis, said he instructs his students that part of the job is "being sort of an amateur psychologist."
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