BRIC Funds Top Performers of 2009
Emerging markets funds, particularly those focused on the BRIC nations of Brazil, Russia, India and China, were the top gainers in 2009, soaring an average of 72%, according to Morningstar data. But following emerging markets funds' disastrous 55% decline in 2008, investors are being advised to proceed with extreme caution.
"Most fund managers think the China and emerging-markets growth stories are still intact for the long term, but [2010 is] a tough call because of the run-up we've seen this year," Gregg Wolper, senior fund analyst at Morningstar, told The Wall Street Journal.
Nonetheless, managers of international funds argue that the valuations of their funds are below their record highs, giving them cause for optimism in 2010. As Christopher Arbuthnot, co-manager of the John Hancock Global Opportunities Fund, up 93% in 2009, put it: "A lot of the stocks we own are still well below their prices in mid 2008, and yet their businesses haven't really been affected [by the economic slowdown]."
Bradley Radin, manager of the Templeton Global Smaller Companies Fund, which delivered 70% last year, added: "There are still sectors and countries that are beaten up," failed to rise in 2009 and are more than likely to do so in 2010.
Among the 25 largest international mutual funds and exchange-traded funds, the biggest ETF winner was the iShares MSCI Emerging Markets ETF, up 68%, and the best-performing equity fund was the Dodge & Cox International Stock Fund, up 48%. Among funds focused only on China, the Oberweis China Opportunities Fund takes the top prize, having returned an astounding 130% in 2009. By comparison, among Japan funds, the best-performer was the Fidelity Japan Smaller Companies Fund, which rose 20%.
IRS Stalls on DB(k) Hybrid
Because the Internal Revenue Service has not yet determined the market rate of interest for so-called "DB(k)" plans-hybrids of pensions and 401(k)s-many companies eligible to begin offering them as of Jan. 1 are waiting on the information.
Companies with between two and 50 employees are eligible to offer the plans. Based on rules in the 2006 tax code, Principal Financial and the American Society of Pension Actuaries developed DB(k)s, which would offer a small lifetime income stream based on an employee's salary at retirement out of a lump cash sum. Both workers and their employers would make contributions to the plan.
The Pension Protection Act of 2006 required the IRS to determine an interest rate on the cash balance accounts that would not exceed the market rate of return, which the IRS has yet to determine.
Vanguard Settles Bias Suit
Vanguard will pay $300,000 to settle a lawsuit filed by the U.S. Equal Employment Opportunity Commission accusing it of racial bias against a black financial planning candidate and overall bias in its hiring practices.
The EEOC alleged in a federal complaint filed in September that Vanguard decided not to hire Barbara Alexander as a financial planning manager because she was black even after she was told during the hiring process, including at roughly 13 interviews, that she was qualified for the job. Alexander has worked in the industry for 14 years.
Vanguard instead offered the job to two less qualified white men, and one accepted, according to the EEOC. The settlement was filed Monday in U.S. District Court in Philadelphia.
Morningstar Names Fairholme Manager of 2009
Morningstar has announced its three Fund Managers of the Year for domestic stock, international stock and fixed income.
Bruce Berkowitz, manager of the Fairholme Fund, is Domestic Stock Fund Manager of 2009. The team at American Funds EuroPacific Growth Fund was named International Stock Fund Manager of 2009, and Fixed Income Fund Manager of 2009 goes to the team running the Loomis Sayles Bond Fund.
"Stock and bond markets posted spectacular gains in 2009, but investors remain subdued, with portfolios still marred by the global financial crisis that began in 2007," said Morningstar Director of Fund Analysis Karen Dolan. "The winning managers deftly steered their funds throughout the tumultuous environment and emerged strong in 2009's rally."
Morningstar selected the three winners for their "exceptional stewardship of capital" over the long term, Dolan added, taking both the very difficult 2008 and last year into account.
Berkowitz revamped his portfolio in 2008 by selling high-flying energy stocks and picking up out-of-favor pharmaceutical and defense companies. His fund gained 39% in 2009, placing it in the top 9% of its large-blend peer group. Since its inception in December 1999, the fund has more than tripled, while the market declined 10% in that period.
"Bruce Berkowitz continues to impress in good markets and in bad. While 2009 is a great achievement for the fund, it is all the more impressive when you consider the attractive returns he's put up year after year in a variety of environments," Dolan said.
The American Funds EuroPacific Growth Fund also rose 39% in 2009, putting it in the top 15% of its peers. Driving this growth were timely and gutsy bets on emerging markets, financials and cash. The eight-person management team includes: Stephen Bepler, Mark Denning, Nicholas Grace, Carl Kawaja, Jonathan Knowles, Sung Lee, Robert Lovelace and Jesper Lyckeus. Morningstar also noted the firm's very low 80-basis-point expense ratio, compared with the 1.52% international stock fund average.
The Loomis Sayles Bond Fund, a deep value, go-anywhere fund managed by Dan Fuss, Kathleen Gaffney, Matthew Eagan and Elaine Stokes, delivered 37% in 2009 and has risen an average of 8.3% a year since 1997. This is the second time Fuss has received the award for this category, having taken home the honor in 1995.
Morningstar noted that all of the managers have more than $100,000 of their own money invested in the fund; Fuss has more than $1 million at stake.
H&R Block to Pay $20MFor Excessive IRA Fees
H&R Block has settled with New York over alleged excessive fees it charged investors it steered to its Express IRA. The tax preparer will refund between $11.4 million and $19.4 million to customers and pay $750,000 in fines and fees.
"H&R Block's aggressive peddling of fee-laden retirement accounts that were virtually guaranteed to lose money needlessly cost families across our country millions of their hard-earned dollars," said New York Attorney General Andrew Cuomo. "This settlement will provide a measure of relief in these difficult times."
The A.G. said the interest that 85% of the Express IRAs paid didn't cover the fees charged and that H&R Block opened more than 600,000 Express IRA accounts since 2000, advertising them as paying "great rates" and being a "better way to save." In addition, investors who closed their Express IRA accounts were charged an exit fee that was not disclosed at the outset.
More Americans Setting Financial Goals: Fidelity
Forty-three percent of Americans are setting financial New Year's resolutions for 2010, Fidelity Investments found in a survey of 1,000 people age 18 and older, up dramatically from the 35% who traditionally have said they were setting financial goals. Fidelity attributed the financial crisis to the new sensitivity to money matters.
Among those aged 35 to 44, 55% are setting financial goals. By gender, women are more financially attuned, with 48% setting financial goals for the New Year, compared with 39% of men.
Seventy-one percent also said they hope to increase their confidence level in their finances in the coming year. Likewise, attendance at Fidelity seminars rose 25% in the past year, and the company handled more than 1.2 million guidance interactions with customers in 2009.
As to specific goals, 51% cited saving more money, 30% want to spend less money and 14% are aiming to stick to a budget. Forty-seven percent said they intend to set financial goals, and 43% hope to save for retirement.
"Americans are eager to feel better about their personal finances, and it's driving them to ask themselves questions about how to set short- and long-term goals," said Ken Hevert, a vice president at Fidelity. "As investors continue to ask these crucial questions, it's important they seek trusted guidance and create an action plan." Thus, Fidelity has created financial life stage guidance at its website: http://personal.fidelity.com/planning/guidance_overview.shtml.cvsr.
Investors Cashed Out of 401(k)s in 2009-After All
While investors have continued to steadily contribute to their 401(k)s throughout the two-year-long financial crisis and have kept 401(k) loans, hardship withdrawals and cash-outs to a minimum, there was, after all, a sudden surge in withdrawals last year, according to Vanguard.
In fact, investors who borrowed money from their 401(k)s in the first half of the year rose 6% overall, and non-hardship withdrawals by workers 59-1/2 or older still on the job rose 14%, according to Vanguard.
Hewitt Associates found a 10% increase in loans at the end of 2009, and a whopping 20% rise in hardship withdrawals. Among those who left their jobs in 2009, a startling 46% cashed out of their 401(k)s instead of appropriately rolling them over. Among those in their 20s, the cash-out rate rises to a troublesome 60%; by comparison, only 34% of people in their 50s and 43% of people in their 40s took the money.
"We speculate that the increase in loans and non-hardship withdrawals is related to the general economic conditions," Vanguard said.
Americans Hopeful About Economy in 2010: Putnam
In a survey of 1,000 people, Putnam Investments found the majority expect the economy to rebound in 2010 but that they are still planning to save more in the New Year. In fact, old standby New Year's resolutions such as losing weight or exercising more took a back seat this year to saving more, cited by 36%. This edged out exercising (34%) and weight control (34%). Sixty-three percent believe the stock market will rise in 2010, and 52% were more hopeful about their own financial situation, but 57% think consumer spending will remain muted and only 40% expect the U.S. economy will be "much healthier" in 2010. Employment for the entire nation remains top-of-mind, with 32% saying they hoped to see job growth in the coming year, followed by 18% citing U.S. economic growth. Only 14% want the healthcare reform bill to pass.
Consumer, Investor Confidence Indexes Rise
Two leading confidence gauges indicate growing optimism among investing professionals and the public. The Conference Board's Consumer Confidence Index rose to 52.9 in December, from an upwardly revised 50.6 in November.
The index is based on a survey of 5,000 U.S. households and needs to reach 90 or above to indicate the economy is stable. A reading of 100 or above shows strong growth.
"A more optimistic outlook for business and labor market conditions was the driving force behind the increase in the expectations index," said Conference Board Consumer Research Center Director Lynn Franco. "Regarding income, however, consumers remain rather pessimistic about their short-term prospects, and this will likely continue to play a key role in spending decisions in early 2010."
Meanwhile, the State Street Investor Confidence Index for December rose 3.1 points to 103.9 from 100.8 in November.
Ads Tout NY Whole Life
New York Life Insurance has a new print ad campaign highlighting the long-term guarantees of its whole life insurance product, running in Newsweek, Kiplinger's, BusinessWeek Forbes, National Geographic, Smithsonian, Woman's Day, and U.S. News & World Report.
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