Legg Mason Launches Corporate Branding Ads
Having completed the integration of the money management group from Citigroup, Legg Mason is now trying to showcase the resulting merger with a $4 million corporate print ad campaign, The Wall Street Journal reports.
Following the merger, Legg Mason now runs seven money management firms, and the company realizes that consumers not only don't understand the upshot of the merger, but even those who sell its funds don't know that the firm includes Batterymarch, Brandywine Global, Clearbridge Advisors, Legg Mason Capital Management, Permal, Royce & Associates and Western Asset Management. Hence, the campaign.
Running in newspapers and trade publications, one ad shows a gold pocketwatch, with the tagline, "Independently impressive. Together, extraordinary." Another features a violin with the tagline, "Built to win."
"We really want to highlight that we have a very unique structure, this affiliate structure," said Donald Froude, head of U.S. distribution for Legg Mason. The firm's affiliates "are all well-known names that have been around for decades in the investment business, and we've got them all under one umbrella," he said.
Other "outdoor" ads will appear on digital screens in elevators in cities where Legg Mason financial advisers and brokerages are located. Going forward, Legg Mason is considering online advertising.
Kentucky Case Could Eliminate 529 Tax Breaks
The tax-free provisions of 529 college savings plans and other state programs could be significantly curtailed if the Supreme Court decides to review a Kentucky court ruling that found it unconstitutional for Kentucky to tax municipal bonds issued in other states, while not taxing those issued in-state.
Speaking at a federal outlook session during the National Association of State Treasurers' annual legislative conference, Richard Sigal, a partner at Hawkins, Delafield & Wood, said college savings plans, which exempt students' tuition fees from state taxes, and even city and state programs that hire in-state contractors, could be affected by a high court review of the ruling in Kentucky v. Davis.
Sigal later said the case could impact a broad range of state programs that offer tax or other preferences for in-state versus out-of-state entities or individuals.
Many states try to lure residents to their in-state college savings programs by offering them a deduction on personal income tax returns for contributions to these plans.
If the Supreme Court decides to review Kentucky v. Davis and sides with the state appeals court ruling that it is unconstitutional to tax out-of-state but not in-state issued bonds, the same reasoning could be applied to 529 plans and could wipe out the state tax advantages that many states offer, Sigal said.
Kentucky asked the Supreme Court last November to review the appeals court ruling, which the state's high court declined to review and let stand. George W. Davis and Catherine V. Davis, who sued the state over the issue, owned a lot of bonds issued by other states and were protesting having to pay taxes on those bonds, but not the bonds issued in-state.
The municipal market has been waiting for weeks to see whether the Supreme Court will take up the case. At least 38 states refrain from taxing bonds issued in state, Sigal said. But other states have different policies. Utah has a reciprocal program under which it exempts taxes on bonds issued by states that exempt taxes on bonds issued by Utah and its authorities. Indiana exempts taxes on all municipal bonds regardless of where they are issued.
Meanwhile, Ken Roberts, another partner at Hawkins who spoke at the same session, said the University of Kentucky is trying to see if it can create a model that can be used to study how eliminating state taxes on muni bonds would affect various states.
Americans' Net Worth Grew in Fourth Quarter
Although the real estate market and retail sales are in a slump, the net worth of the average American household grew in the fourth quarter of 2006, largely due to the strength of the financial markets, Business Week reports. Net worth grew 2.5% from the previous quarter and 7.4% from the year before, according to data from the Federal Reserve.
China Bans Funds From Directing Brokerage Trades
With the stock markets doing so well in China and competition heating up, it didn't take long for fund companies there to realize they might pump up the volume by promising trading commissions to those brokers that sell large volumes of their funds.
Now Chinese regulators are banning the practice, known as directed brokerage here in the United States, Industry Updates reports.
The rules prohibit a fund manager from promising a set amount of trades to brokers that meet sales targets and cap stock trading commissions from a fund manager to a single broker at no more than 30%.
Chinese regulators are asking fund firms to select brokers that have "solid financial conditions, abide by operation rules and have strong research abilities."
Many applauded the move. "The stock regulator should step up oversight of the mutual fund sector, which is expanding at a fast clip," said Wu Zhiguo, an analyst with Guohai Securities. "The new rules are designed to help weed out potential misconduct between financial institutions and to protect the interest of minority investors."
Dip in Yen Carry Trades Boosts Yen Currency ETF
The CurrencyShares Japanese Yen Trust, an exchange-traded fund from Rydex Investments, is up 2.6% and has attracted $360 million since its introduction on the New York Stock Exchange a month ago, MarketWatch reports. Many traders believe that what's boosted the yen in recent weeks is a deceleration in yen carry trades and traders buying the currency as a result. Some also believe the Japanese economy is now on solid ground.
Rydex admitted it didn't know ahead of time that this was a particularly opportune time to launch a yen currency fund. "Timing is everything with ETF launches, but it's not like our crystal ball was especially clear this time," said Steve Sachs, director of trading at Rydex.
The yen currency fund is one of a number of such funds that Rydex offers, including those tied to the Euro, the British pound and the Swedish krona.
American Funds Expects Sales to Slow This Year
Sales of American Funds have outpaced competitors for the past five years. In each of the past two years, the fund shop took in more than $73 billion. But that's likely to stop in 2007, the firm tells Investment News.
"Those [sales] data points are as cyclical as market results," rationalizes Drew Taylor, vice president and manager of the analytical services group at American Funds' investment advisor, Capital Research. "Our five-year relative figures will come right back in line with everyone else."
While Taylor didn't specifically say so, the five-year performance of his firm's funds is now in line with competitors Fidelity and Vanguard. And that should certainly make advisers think twice before recommending American Funds over those choices.
But Taylor did concede that American Funds doesn't tend to do well in bull markets, and the market has been strong in recent years.
However, not all analysts, consultants or financial advisers believe American Funds is going to see sharp declines in sales this year. Lipper Senior Analyst Tom Roseen calls Taylor's prophesy "false modesty."
"I've been to the adviser conferences," Roseen said, "and American Funds is on the tip of everyone's tongue."
Investors May Rue Lack Of Hedge Fund Regulation
Just as it took four years following the stock market crash of 1929 for the government to pass the Securities Act of 1933, regulators and the courts are dragging their heels on hedge fund oversight, MarketWatch writes in a column.
Opponents to securities regulation in the 1920s argued that anti-fraud laws were adequate to regulate the stock markets and that no industry-specific oversight was needed. Today, those who oppose regulation of hedge funds make the similar argument that the industry is doing fine on its own. Those who believe that hedge funds should be regulated before there are any more serious problems, however, believe people will look back at this moment in history and wonder why regulators sat idly by.
In fact, some believe a serious hedge fund blowup that will have global ramifications is in the offing.
But at least one Senator, Charles Grassley (R-Iowa), has harkened back to the issue of hedge fund registration with the Securities and Exchange Commission and recently proposed such an amendment.
"My amendment gives Congress a good opportunity to say there should be greater transparency with hedge funds," Grassley argues. "Today, the Average Joe has a stake, as pension funds are invested in hedge funds."
Mutual Fund Trustees Join
Efforts to Limit CEO Pay
Mutual fund trustees have joined a growing movement by activists, academics, foreign investors, union leaders and politicians to limit excessive chief executive officer pay, The Wall Street Journal reports.
In fact, last year, a number of mutual fund companies withheld votes to reelect directors at Pfizer and Home Depot after they rewarded their CEOs with gargantuan pay packages despite poor share performance.
Certainly, the push to limit executive pay seems to be gaining steam. Through March 9 of this year, shareholders have put forth 266 proposals on executive pay, nearly double last year. And there are new federal disclosure rules that require companies to reveal information about executive pay in their proxies.
Whether the pressure to limit pay will work remains to be seen. In the past, companies have eluded efforts to restrict pay by delivering it in other forms. And, at times, they have defiantly increased pay in retaliation.
Investors should prepare themselves for a shock, said Mark Reilly, a partner with 3C Compensation Consulting Consortium. Half of the 500 largest companies rewarded their CEOs with total packages worth $100 billion in 2006.
Small-Cap ETF Trading Volume Impacting Markets
The trading volume of some small-cap exchange-traded funds is so large that it is having an outsize effect on the value of some small company shares, The Wall Street Journal. Because ETFs are a large presence in small-cap stocks, they wield influence over stock prices, explained Curtis Jenson, manager of the Third Avenue Small-Cap Value Fund.
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