Energy Mandates Provide Major Opportunities: Calvert
President Obama and Congress are both committed to finding new energy sources, and as such, alternative energy and infrastructure will be dominant investment themes of 2010, according to Calvert Investments and KBC Asset Management International.
In a press conference Tuesday, the two socially responsible investment firms noted how the White House supports a policy that would reduce U.S. emissions by 80% by 2050. The president is also looking to create five million jobs by investing $150 billion in clean technologies and energy sources. Even if the government doesn't pass legislation to spend this money, the companies said, higher energy prices will prompt private enterprise to find new solutions.
On top of this, the government is looking to improve the nation's water infrastructure by 2030, which some believe will cost between $300 billion and $1 trillion.
Acknowledging that the recession, now in its 16th month, is turning out to be far more severe than other recessions, which have averaged 11 months in duration, Calvert does expect the economy to improve in 2010.
Jens Peers, lead portfolio manager of the Calvert Global Alternative Energy Fund and the Calvert Global Water Fund, said: "Some alternative energy projects around the world have hit the 'pause button' as a result of the tightening credit market, but the groundwork has been established for a very quick bounce back in clean energy in 2010," beginning with the most mature alternative energy source, wind electricity.
Private Charities Move From Foundations to Donor-Advised Funds
More small private foundations are moving their assets into low-cost, flexible donor-advised funds, sometimes called charitable funds, run by mutual fund companies, The Wall Street Journal reports.
In a donor-advised fund, the shareholder can determine which charity, or charities, the fund benefits and take an immediate tax deduction, while their assets continue to grow tax free.
Though currently only a $27.7 billion industry, compared to the $300 billion that Americans donate annually to charities, donor-advised funds have increased four times from the $7.5 billion they had under management eight years ago.
And with the drastic market downturn last year, it makes more sense to philanthropists to move from foundations that require minimum distributions of 5% each year, regardless of the market's direction, to donor-advised funds, which have no such rule.
In addition, the annual fees in a donor-advised fund can run only a few hundred dollars a year, versus the thousands a private foundation costs due to the time and the staff involved in running it. Furthermore, the identities of shareholders in donor-advised funds remain private, whereas they often become public in foundations.
The only drawback, for some, is the sense that they lose the cachet of having a private family foundation that may be conducting esoteric research or catering to a specific cause that an outside charity may not.
Still, with 64,000 private foundations in the U.S., approximately a third of them with assets of $1 million or less, the market to expand donor-advised funds certainly exists. Last year, Fidelity increased the number of private foundations that moved to its donor-advised funds by 43%, and Charles Schwab doubled the number.
Futuretrust Banking Offers 529 Checking Account
Futuretrust Banking Center is offering customers a checking account focused on 529 college savings. The account earns 1%, which is deposited into parents' 529 college savings plan each month.
With the cost of college having increased 51% over the past five years, 86% of parents now say they are having difficulty saving for college, Futuretrust found in a survey it conducted with Harris Interactive.
"We've made it easier for young families to save for their child's college education, especially in a season of economic difficulty," said Rebecca Matthias, president of Futuretrust. "The Futuretrust Banking Center is another way that Futuretrust members are able to put money away without extra effort. The free online services are reliable, secure and convenient."
Futuretrust also offers a MasterCard credit card that contributes 1% of all purchases to parents' 529 college savings plan.
Hedge Funds to Reach $2.6T Worldwide by 2013
Hedge funds will reorganize following sharp declines last year and into 2009, to emerge stronger and surpass $2.6 trillion in assets by 2013, predicts The Bank of New York Mellon and Casey Quirk.
The firms believe that hedge funds will bottom out at $1 trillion this year, after which capital appreciation and $800 billion in net inflows will push global levels to $2.6 trillion by 2013.
Only 20% of assets in hedge funds are those of institutional investors, the firms found, and that is bound to increase to possibly as much as 40%, led by pension plans in North America, followed by the U.K. and Northern European institutions. The remaining 60% of assets in hedge funds will be those of high-net-worth individuals.
The most popular type of hedge fund will be hedge funds-of-funds, which will capture 60% of net inflows between 2010 and 2013, according to the two companies.
At the same time, the industry is facing a "transformational crisis" and will turn to third parties for administrative support, The Bank of New York Mellon and Casey Quirk said.
"The events of 2008 have changed the old dynamic," said Brian Ruane, executive vice president of alternative investment services at The Bank of New York Mellon. "Investor and regulatory demands for new levels of transparency mean the legacy operating model no longer works. Hedge funds increasingly will turn to independent third parties for middle- and back-office functions, such as portfolio accounting and reconciliation, custody of non-collateral assets, pricing and valuation, cash management and counter-party risk mitigation."
Hedge Funds Edged Down 0.1% in 1Q09: Morningstar
The Morningstar 1000 Hedge Fund Index fell 0.1% in the first quarter, and the Morningstar MSCI Asset-Weighted Hedge Fund Composite Index rose 0.5%.
In March, while equity mutual funds surged, hedge funds failed to take the same advantage, with the 1000 Hedge Fund Index rising 2.1% in the month, and the asset-weighted index increasing 0.1%.
However, emerging markets hedge funds rose sharply in March, surpassing equity markets around the world; the Morningstar MSCI Emerging Markets Index and Morningstar Emerging Markets Hedge Fund Index rose 4.2% and 6.2%, respectively.
"In March, we saw a recovery in equity and some credit markets, which helped hedge funds post small gains. But many hedge fund managers, believing that the economy is not yet out of hot water, continued to remain cautious, and were not strongly positioned to participate in the market rally," said Nadia Papagiannis, a hedge fund analyst with Morningstar.
On the other hand, the Morningstar Corporate Actions Hedge Fund Index, which includes funds that attempt to profit from mergers and acquisitions, IPOs, spin-offs and capital restructure, increased 2.2% in March and 3.4% in the quarter. Deals from bankruptcies led the strength, particularly in March in the U.S. and Japan.
Nearly Three-Quarters of Large-Cap Funds Trail S&P
Actively managed funds continued to drastically trail three major Standard & Poor's indexes over the past five years ended Dec. 31, 2008.
The S&P 500 outperformed 71.9% of actively managed large-cap funds, the S&P MidCap 400 outperformed 75.9% of mid-cap funds, and the S&P SmallCap 600 outperformed 85.5% of small-cap funds.
"The belief that bear markets strongly favor active management is a myth," said Srikant Dash, global head of research and design at S&P. "A majority of active funds in each of the nine domestic equity style boxes were outperformed by indices during the down markets of 2008. The bear market of 2000 to 2002 showed similar outcomes."
Reserve Holding Onto $3.5B 'Lawsuit War Chest'
Reserve Management has returned $45.8 billion, or 89% of the assets in the now-defunct Primary Fund, but is holding onto $3.5 billion to defend itself against more than 30 lawsuits. Those redemptions equal 91.72 cents on the dollar, well below the 97 NAV that Reserve calculated.
Many investors are not only galled by their losses and Reserve's war chest, but have not received any direct communication from the company, only from news reports and the firm's website.
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