Bill Would Require Funds to Reveal Proxies

House Financial Services Committee Chairman Barney Frank (D-Mass.) is considering a bill that would require mutual funds, pension plans and other large institutional investors to publicly reveal how they vote their proxies, in order to impose proper corporate governance on otherwise passive investors who, he believes, don't vote in the fiduciary interest of their end investors.

"If you are the owner of shares, you have a privacy right," Frank said at a hearing on financial services compensation. "But if you own shares on behalf of a fiduciary, you will need to disclose how you vote."

Although many pension plans disclose their voting guidelines, they are not legally required to disclose how they vote their proxies. In late 2003, the Securities and Exchange Commission passed a measure requiring mutual fund companies to file an annual SEC listing of their proxy votes every August.

Vanguard founder and former Chief Executive Officer John Bogle called on the mutual fund industry in a recent Wall Street Journal editorial to stand up for shareholders' long-term benefit by holding companies up to higher standards.

Corporate Library Research Associate Beth Young said a uniform law would hold mutual funds and other large investors up to a higher, more uniform standard: "At a minimum, it pushes investment managers to look at their proxy-voting process and what they need to do to insulate themselves from corporate or labor conflicts of interests. By requiring public disclosure of votes, investment managers will think more about whether they have the information and staff to act as a fiduciary for the people they are voting on behalf."

Schwab E-Mail Could Bolster Case Against YieldPlus, Judge Says

U.S. District Judge William Alsup said that a 2007 e-mail that a Charles Schwab managing director wrote could prove to be a "mea culpa smoking gun" since the executive called on Schwab to tell investors it misrepresented risks in the short-term bond fund Schwab YieldPlus.

The plaintiff's attorney, Reed Kathrein, quoted the e-mail, in which Janice Diamond urged a superior to "admit our mistakes and make changes to prevent this from happening again." Judge Alsup commented, "The jury could certainly construe that to mean, 'We have not been honest with our investors.'"

However, Schwab spokesman David Weiskopf countered that the e-mail should not be singled out since, first of all, its author was a junior-level credit analyst and, second, the plaintiffs have filed "millions" of e-mails in the case.

"That e-mail isn't any smoking gun. The date of that e-mail was after the credit crisis and supports our view that what [Diamond] was commenting on was not that there was anything done wrong, but that we felt badly about the consequence of what this unforeseeable event has caused," Weiskopf said.

However, the plaintiffs' attorney also cited a September 2006 e-mail from Schwab Chief Investment Officer Liz Ann Sonders in which the CIO wrote, in a "worst-case scenario," there could be a "seizing up" of mortgage-backed securities, in which buyers and sellers would be "nowhere to be found, regulators having placed them in handcuffs."

Weiskopf shot back at that e-mail, as well, saying it was only one of "five or six perspectives" that the CIO provided.

The trial is scheduled to begin July 5 in the U.S. District Court for the Northern District of California.

Affluent View Vanguard As Top Mutual Fund Brand

The leading mutual fund brand in the nation is Vanguard and the leading distributor is Charles Schwab, 4,000 affluent and high-net-worth investors told Cogent Research in a recent survey. In both categories, Fidelity, which had previously held first place since Cogent started the research in 2006, was knocked to second.

The change reflects changing investor perceptions, loyalty and household penetration, Cogent said. Market dynamics appear to be contributing to Fidelity's challenges, particularly a decline in the number of wealthy investors using 401(k) plans, Cogent said. In fact, for the first time ever, affluent investors have more dollars allocated to IRAs than to employer-sponsored retirement plans.

"It would appear," said Meredith Lloyd Rice, an author of the report, "that Fidelity is caught in a perfect storm of an aging population, higher unemployment and lower across-the-board plan participation."

Vanguard has improved its relationship with investors over the past year as a mutual fund provider, Cogent said, with investors citing Vanguard's financial stability, range of products and fund performance. "It's worth noting, however, that Fidelity remains a powerhouse and is probably better positioned than most other firms to make any necessary course corrections in the coming months," Rice said.

Commenting on the survey, Fidelity spokeswoman Teri K. Ginsberg said, "Millions of Americans and thousands of clients have placed their faith and trust in Fidelity for decades because we are a stable and strong firm, and we have a breadth of products and services that is second to none. We continue to be the nation's No. 1 provider of 401(k) plans and IRAs."

425 Funds Closed in 2009, Up From 145 in 2008

In 2009, 425 mutual funds were either closed or merged out of existence, up nearly three-fold from the 145 funds that ceased to exist in 2008, according to Lipper. And counting individual share classes, 1,336 funds ceased to exist last year, up from 825 share classes that were liquidated the year before.

In recent years, as the markets have tumbled and continued on a volatile path, many investors have exited from stock funds, and investment advisors have been looking to reduce costs by eliminating overlapping and poorly performing funds.

The total number of funds is still high, however. According to the Investment Company Institute, there are nearly 7,700 funds on the market.

Lord, Abbett Lowers Fees On Two International Funds

Lord, Abbett has reduced the net expense ratios on two of its international funds by 31 and 23 basis points, bringing the Class A charges to 1.12% on both the $949 million Lord, Abbett International Core Equity Fund and the $325 million Lord, Abbett International Dividend Fund. The two funds are now less expensive than the averages in both their Morningstar and Lipper peer groups.

Lord, Abbett decided to lower the fees in light of the strong returns and dividends international funds delivered in 2009 and their increasing popularity as a source of diversification among investors.

"Today, more than half of the world's market cap and almost three times the number of public companies are outside the United States," said Mike Weldon, director of marketing and a partner at Lord, Abbett. "Yet, few investors are aware of this breadth and, as a result, typically allocate less than 20% of their portfolios to international markets."

Experts Scrutinize Retirement Savings Woes

NEW YORK - American retirees could fall drastically short of paying for essential needs unless urgent action is taken to increase savings, Putnam President and Chief Executive Officer Robert L. Reynolds said at the company's retirement income summit on Tuesday.

Reynolds called on significant public policy reform and private sector innovation to encourage higher savings, less leverage and less debt among retirees. He also said that asset managers and insurance providers should form new alliances to develop innovative retirement solutions. He would like to see absolute-return products be a part of all retirement portfolios.

"This is an American challenge," Reynolds said. "We're all it in together-the wealthy, middle class and lower income."

Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, said Americans are saving much less than they should be saving regardless of how they are investing. He noted that annuity choices had been "aggressively" placed in defined benefit plans since the 1970s, but once workers started exiting DB plans they turned toward single-sum solutions instead.

"Even if we modify the DC plans and make these annuities available at a good cost, there's still the tremendous challenge in having people make the right decision," Salisbury said.

Jeffrey Knight, managing director and head of global asset allocation for Putnam Investments, said it was "remarkably depressing how participants have handled their asset allocation." Knight said retirement solutions need to make saving easier, without abandoning the goal of earning returns during retirement since people are living longer. More importantly, they should protect against a potentially devastating loss. But Knight questioned whether investors are prepared to make the smart retirement income decisions.

"In the right circumstances, can they make the right decision?" he asked. "It's easy to be skeptical given their history."

Wien Sees GDP Growth Surpassing 5% in 2010

Blackstone Advisory Services Vice Chairman Byron R. Wien, who has made annual predictions for U.S. markets and the economy at the start of the year for the past quarter century, believes there will be a number of welcome surprises in 2010-not least of which will be GDP growth surpassing forecasts of 5%.

In addition, the Blackstone vice chairman sees unemployment falling below 9%, and operating earnings of companies in the Standard & Poor's 500 Index topping $80.

However, as the Federal Reserve begins to see real improvement in the economy in the second half of the year, Wien says, it will raise the Fed funds rate above the near-zero level to 2%. And, with the U.S. Treasury borrowing at record levels and foreign central banks reluctant to keep buying notes and bonds, the 10-year Treasury yield will rise above 5.5%. Demand for Treasuries will fall and, commensurately, banks will be more willing to lend to corporations and individuals, Wien says.

The stock market will continue on an extremely volatile path, declining after the S&P 500 rallies to 1300 in the first half of the year, Wien predicts. The dollar will regain some of its lost value in 2010, although longer-term prospects are uncertain.

Finally, Wien believes financial services reform, like healthcare, will be watered down, which markets will likely welcome, sending financial services stocks up to new highs.

Bond Mania Could Bust, Citigroup Strategist Warns

In 2009, mutual funds netted a total of $377 billion, with $357 billion, or 95%, of that going to bond funds. Outflows from U.S. stock funds were $25.7 billion. With earnings of long-term government issues so low, investors are likely to continue to march into high-yield, long bonds, warns Tobias Levkovich, chief U.S. strategist at Citigroup Capital Markets. And that, in essence, could create the same kind of dot-com mania that led to the market crash in 2000.

"Since earnings are discounted off long-term government cost of money, higher bond yields in the future are likely to have meaningful repercussions for stock prices," Levkovich wrote in a client note. "Thus, equity investors need to be aware and somewhat concerned about the rush into bond funds. Should investors sense that losses will grow as existing portfolios' yields rise, flows could reverse and further exacerbate a rising yield dynamic."

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