Best Fund Managers Consider Macroeconomic Trends, Time Market

Investors would be wise to work with mutual fund managers who pay close attention to macroeconomic investment trends when the market is declining and microeconomic factors when the market is rising, according to three New York University Stern professors Marcin Kacperczyk, Stijn Van Nieuwerburgh and Laura Veldkamp.

They found that the top 25% of actively managed equity mutual funds exhibited extraordinary stock-picking ability during expansionary periods and sound market timing ability in recessions. They also found that the funds they managed tended to be smaller, and that the managers held MBA degrees and moved to hedge funds later in their careers.

"The current recession has left many investors with lost confidence in financial markets and, more narrowly, in the people managing their money," Kacperczyk said. "Given that we are currently in a recession, our work suggests that individuals should be looking for a different type of investment manager: one that invests based on macro information."

Their report is available at:

Managers Offer Flexible Funds to Time the Market

Sensing that investors are still worried about market volatility and an impending reversal of this year's rally, fund companies are increasingly allowing their managers to hold larger amounts of cash, or offering tactical, dynamic, absolute-return or other types of funds that have the flexibility to reverse course.

And these funds are selling neck-to-neck with equity funds, with investors placing $4.1 billion into allocation funds in the first nine months of the year, compared with $4.3 billion into stock funds, according to Morningstar. Of course, this pales in comparison with the $213 billion invested in bond funds in this period of time.

Long-Term Mutual Funds Take in $3.14 Billion

Long-term mutual funds took in $3.14 billion in the week ended Nov. 4, marking the 34th straight week of inflows, which now total $349 billion, according to the Investment Company Institute.

Outflows from equity funds surged to $4.7 billion, up from the $840 million the previous week. U.S. stock funds lost $5.25 billion of assets, while foreign stock funds took in $546 million.

Outflows from hybrid funds totaled $358 million, surpassing the $239 million in outflows from hybrid funds the previous week. Inflows to bond funds slowed to $7.49 billion for the week ended Nov. 4, down from $10.19 billion of inflows the previous week.

Meanwhile, investors redeemed $13.13 billion from money market funds, according to iMoneyNet, continuing a trend of recent months of investors seeking better yields than the near zero percent money funds now offer.

Target-Date Funds Getting A Bum Wrap: Manning

Although target-date funds could possibly be better designed and perhaps have less disparity between their equity exposure and glidepaths, they are not to be held responsible for the current retirement shortfall many people are now facing, according to Manning & Napier. No mutual fund could adequately shield investors from the near collapse of the U.S. financial system, according to the firm.

As Patrick Cunningham, a managing director with Manning, noted, even the Senate Special Committee on Aging, in its recent Oct. 28 hearing on target-date funds, recognized in its final report that target-date funds "offer investors certain advantages generally not offered by other types of investment vehicles, and well-constructed target-date funds have great potential for improving retirement income security."

"The committee's concerns regarding target-date design seem to be based on the significant differences in asset allocation and investment performance amongst the various providers of 2010 target-date funds, as well as the sizeable losses experienced by many 2010 funds in 2008," Cunningham said.

Instead, Cunningham dismissed the widely different approaches that target-date fund managers take, chalking it up to "different perspectives" in a free market system, saying, "It really should not come as a surprise that various investment managers have different perspectives on what securities should be owned, in what percentages, and in what environments. Part of what makes the stock market function is that different investors have different perspectives."

Cunningham also believes that the Great Recession of 2008 was somewhat of an aberration and that it is unfair to single out a fund category's performance in a single year.

Instead, Manning & Napier advocates that plan sponsors and participants get better, clearer information on a target-date fund's glidepath, equity exposure and overall investment discipline. In addition, the firm said, lower fees may not guarantee a better-quality, higher-performing result.

Fidelity Supplies Advisers, B/Ds with Market Analysis

Fidelity Investments has introduced "Insight & Outlook," actionable market analysis for financial advisers and broker/dealers on its custody and correspondent clearing platform, to help them better manage and grow with businesses.

One of the features of the program, for instance, is the Monday "wake-up" conference call in which Fidelity strategists give their updates on the equity and fixed income markets live from Fidelity's trading floor. The offerings also include in-depth reports and webinars on such topics as emerging markets, market volatility and diversification in a highly correlated world, regulatory changes and best business practices for growing clients and assets under management.

"Now more than ever, financial professionals are looking for timely market information and resources," said Charles G. Goldman, president of Fidelity Clearing and Custody.

One of Fidelity's clients, Michael Farr, president of Farr Miller Washington, hailed the information, saying, "The Monday wake-up calls have become an important part of how we start each week. The brief but in-depth insights delivered by Fidelity's capital markets analysts are as solid as what we had received in the wirehouse environment."

Hancock Takes Looming Retirement Issues Head-On

John Hancock has launched a microsite and accompanying advertisements addressing the many looming, difficult questions near-retirees have, such as how to leave a legacy, how best to work with a financial adviser, how to repair a beaten-down portfolio and how to juggle multiple financial goals including saving for retirement, taking care of aging parents and saving for a child's education.

The site is called, and the television, print and online ads, titled "When We," feature conversations between friends in which they recall a time when they were able to think about retirement as a concrete point in the future and are now concerned about whether that can become a reality or not. They talk about the looming question of "Will We" and focus on getting back to "When We."

As each ad closes with a hard question that one of the two friends tries to answer, viewers are encouraged to visit the website to find out the answer.

"Making it easier to find good answers helps reinforce our brand's positioning around giving our consumers confidence about their financial futures," said Jim Bacharach, vice president, brand communications and creative services. "Our research confirmed that a key factor in building trust is whether a company can demonstrate it is keeping consumers' best interests at heart."

Hedge Funds Expected to Grow Assets in Managed Accounts 70% to $800B

As hedge funds pick themselves up from average losses of 28% last year and billions in redemptions, they will increasingly offer separately managed accounts to provide investors with liquid strategies to attract new assets, according to a report from TABB Group.

And these managed accounts will grow 70% from $468 billion this year to $790 billion over the next two years, TABB predicts.

Among the 62 U.S. hedge funds with $130 billion in assets under management that TABB surveyed for its report, 77% said that their investors' top three concerns are operations, safety of strategy and liquidity risk. Investors are now asking more questions on topics previously seen as a minor part of the due diligence process, from safety and soundness of assets, to greater insight into the investment process, including actual holdings.

Besides a movement to offer more managed accounts, hedge funds are likely to lower fees over the next two years. While "2 and 20," 2% flat fees and 20% of upside performance, has been the norm in the hedge fund industry in the past, the new reality, according to TABB, is more like "1.75% and 21.93%." Hedge funds are doing whatever they can to chase the limited supply of capital at hand.

In addition, survey respondents said they have lowered the average lock-up period from 13 months to 10 months.

Fund Companies Inundate Advisers With More Than 100 Messages a Month

The average financial adviser works closely with 14 fund companies and receives more than 100 e-mails, letters, wholesaler visits and internal sales desk calls a month from them, according to Cogent Research's "Adviser Touchpoints 2009" report.

The average fund company contacts advisers seven times a month, with the most active making 16 points of contact, but frequency of communication is not the most important sales criteria, Cogent said. Effective communication is also comprised of consistent, actionable messages that are on-target for the market and the overall economy and making advisers feel personally connected by targeting messages specific to their specialty.

"Clearly, when it comes to outreach strategies, it's not only about quantity," said Cogent Principal and co-founder John Meunier. "It's also about quality. Over the past year, firms that brought real ideas to the table, from both a product and practice standpoint, have been rewarded with a stronger bond to the advisers they serve."

As Carrie Merrick, senior analyst and author of the study, noted, "Right now, for example, providers are jockeying for the attention of the fast-growing RIA segment. However, our research shows it would be a mistake to simply deploy a traditional communication strategy with this group. RIAs greatly prefer electronic communications over phone calls or visits, especially for sales ideas and monitoring product performance.


(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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