Morningstar Names Managers of the Decade
Basing the awards on superior risk-adjusted results and shareholder stewardship, Morningstar has named its Fund Managers of the Decade, bestowing the honors on PIMCO's Bill Gross, Fairholme's Bruce Berkowitz and Oakmark's David Herro, respectively, for fixed income, domestic equity and international equity.
Karen Dolan, director of mutual fund analysis for Morningstar, noted, "These managers got ahead by preserving capital on the downside and believing in their research when it pointed to good value."
Morningstar said Gross, manager of the $192 billion PIMCO Total Return, the largest mutual fund in existence, "made many prescient calls on interest rates, bond sectors and currencies, and nailed the housing bubble." The fund's 10-year annualized total return is 7.7%. By comparison, its peers returned an average of 5.5% a year over the past decade.
Berkowitz, manager of the Fairholme fund since its inception in 1999, has unrivaled stock-picking aptitude for companies with high free cash flow, Morningstar said. The fund earned a 13.2% 10-year annualized total return, beating the S&P 500 by 14 percentage points.
Herro, manager of Oakmark International Small Cap, which achieved a 10% annualized return for the past decade, successfully found "stocks trading well below their value," Dolan said. "His portfolios don't look anything like the benchmark and are often spiced up with a healthy dose of emerging markets exposure."
Supreme Court Seeks White House Input on Janus
After Janus appealed to the Supreme Court to dismiss a lawsuit against it for mutual fund market timing, the high court turned to the Obama administration for its input on the case, Janus Capital Group v. First Derivative Traders. A lower court reinstated the class-action lawsuit, originally filed in 2003. Janus said the lawsuit is flawed since it settled with federal and state regulations in 2004.
Finance Gains Jobs for First Time Since July 2007
As a further sign that the mutual fund industry and broader asset management business and economy are gaining strength, the financial industry netted 4,000 new jobs in December. This was the first time since July 2007 that there has been job creation, according to the Bureau of Labor Statistics. When real estate-related financial jobs are removed, the gains are even better: finance and insurance firms added 9,900 jobs. Jobs in finance now total 7,691,000, up from 7,691,000. In the summer of 2007, there were 8.3 million jobs in finance.
Fidelity VC Breaks Off
Fidelity Investments' venture capital unit has broken off from the fund giant to form an independent firm called Volition Capital. It will continue to manage its previous portfolio of 20 U.S. companies. Going forward, Volition will invest primarily in high-potential, founder-owned technology companies. Fidelity Managing Partners Larry Cheng, Andy Flaster, Roger Hurwitz and Rob Ketterson will continue with the new firm.
Fidelity closed Fidelity Equity Partners, a $500 million private equity firm, last June after only two years in existence.
MFA to Aim Hedge Fund Database at Washington
The Managed Funds Association is planning to create the largest database on hedge funds and use the information to lobby Washington. The database will amass each hedge fund's assets, number of investors, location and various strategies-but encrypt the information so each fund's information is anonymous.
"As the primary source of industry information for policymakers, the media and the public, it's important that we collect and aggregate data in a confidential and timely manner from as many managers as possible," said Richard Baker, president and chief executive officer of the MFA.
The MFA, which has 2,400 members, is partnering with PerTrac Financial Solutions to create the database, which if successful, will far surpass the dozen or so hedge fund databases already created that are limited by the fact hedge funds are not required to register with the Securities and Exchange Commission. PerTrac has already created one of those databases, which totals 22,000 funds from 5,300 advisors.
"We're looking to make a cosmos out of the chaos out there right now," said Meredith Jones, managing director with PerTrac.
Schwab Cuts Trading Fees
Charles Schwab is reducing its online equity trade commissions and add new products to gather customers and assets. Schwab retail investors will pay $8.95 per online trade in stocks or non-Schwab exchange traded funds. Schwab's proprietary ETFs feature commission-free online trading through Schwab accounts. Currently, investors with less than $1 million in household assets at Schwab or those that trade fewer than 120 times annually paid $12.95 per trade plus charges for trades larger than 1,000 shares.
The new simplified pricing is also available to Schwab Advisor Services' independent investment adviser clients who use Schwab's e-Delivery services to receive electronic statements and trade confirmations, and to all clients who trade equities in a Personal Choice Retirement Account, Company Retirement Account, or Plan Administrator Services account held at Schwab.
Schwab also introduced new managed portfolios of ETFs available through a fee-based portfolio advisory program. Schwab Managed Portfolios-ETFs, which have minimum investments of $100,000, are made up of ETFs representing up to 20 asset classes, including equity and fixed income classes, as well as Treasury inflation-protected securities (TIPS), real estate and commodities. Analysts said Schwab is trying to gain customers and market share as customers remain skeptical of the financial environment and advisers shift from one company to another.
Independent Firms to Dominate M&As in 2010
Independent firms will help shape the mergers and acquisitions scene in the asset management industry in 2010, according to investment bank Jefferies & Co.
This new trend, based on several deals in the fourth quarter, some involving independents, would be a new phase in the M&A landscape which has, until now, been dominated by mega-deals involving large corporations and multi-billion dollar contracts.
Divestitures accounted for 60% of the M&A transactions in 2009, a trend Jefferies expects to see continue throughout the first half of this year. But as market conditions improve and asset flows return, many aging advisers of independent firms who were waiting for sunnier skies over the past two years will begin transitioning out of the business in 2010, said Aaron Dorr, a managing director at Jefferies' financial institutions group.
Only 61 independently owned managers were involved in transactions in 2009, 57% less than in 2008 and the lowest level in more than a decade. Nonetheless, large deals such as Advisory Research's sale to Piper Jaffray and the purchase of Metropolitan West Asset Management by TCW in the fourth quarter indicated a new, more independent phase in M&A activity, Jefferies said.
Throughout 2009, the M&A market was dominated by mega-deals with a record nine transactions involving firms with assets under management topping $100 billion. While deal volume in 2009 declined by 35%, the number of assets under management that changed hands rose to an all-time high of $4.0 trillion-up from $1.95 trillion in 2008 and 51% higher than in 2006, the previous record year. Total disclosed deal value also rose last year to $24.9 billion from just $15.9 billion in 2008.
St. Louis Shooter Sued Fidelity Over 401(k) Fees
The 51-year-old man who shot and killed three people, injured another five and then committed suicide in St. Louis earlier this month at an ABB Power manufacturing plant where he had worked was one of the plaintiffs in a lawsuit against ABB and Fidelity over 401(k) fees.
The class-action lawsuit, which includes four other plaintiffs, accuses ABB, Fidelity and Fidelity Management and Research Co. of breaching their fiduciary duty under the Employee Retirement Income Security Act by charging excessive fees and delivering sub-par returns due to mismanagement by ABB. The technological engineering firm should have negotiated lower fees, and Fidelity should not have directed mutual fund trades to its own trading desk, the suit charges.
Although lawmakers have not yet determined whether the lawsuit incited the homicidal rampage by Timothy Hendron, the lawsuit is proceeding in the U.S. District Court for the Western District of Missouri. The court expects the trial to last for four weeks. Hendron's law firm, Schlichter, Bogard & Denton, a personal injury specialist, has filed at least 11 other 401(k) excessive fee lawsuits across the nation.
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