After Two Month Suspension, China Again Approving Mutual Funds
China regulators put new mutual fund offerings on the back burner over the past two months in an attempt to cool down what appears to be an overheated market, but have just allowed ICBC Credit Suisse Asset Management's Core Value Funds and Golden Eagle Asset Management's Component Stocks Preferred Funds to reopen, Shanghai Daily reports.
The China Securities Regulatory Commission had suspended the issuance of new mutual funds in September. As of that date, China's mutual funds had $441.6 billion in assets under management, four times the assets in the beginning of the year.
The reason China regulators decided to permit new fund sales to resume is due to "the recent tumbles on the stock market, [which] have boosted the need to resume the sales of new fund products and give the market a lift," said Dai Ming, an analyst with Kingsun Investment Management.
Top Three Giants' Market Share Now at Nearly 40%
The market share of Fidelity, Vanguard and American Funds in the mutual fund industry continues to expand, with the three giants' market share now at 37.5%, up from 30% 10 years ago, according to Financial Research Corp.
Year to date through September, those three companies took in a third, or 33 cents, of every dollar invested in the 50 biggest fund companies. That's up slightly from 31 cents of every dollar in 1997.
"It's a brutal marketplace. It truly is a David and Goliath' story," Jeffrey Dunham, chief executive officer and president of Dunham & Associates Investment Counsel, told Investment Weekly. "The market does favor these massive-scaled fund families. The vast amount of flows goes to the biggest funds."
Some believe this increasing dominance will prompt some fund companies to exit the business. "There are a lot of small and midsize mutual fund companies trying to decide if it makes sense to stay in the mutual fund business," said Dan Sondhelm, vice president at SunStar. "Some of it is because they're looking to merge with another company that has the scale to do the distribution."
Many smaller fund companies have had a difficult time bearing the cost of employing a chief compliance officer, added Christine Benz, director of mutual fund analysis at Morningstar.
Chuck Freadhoff, a spokesman for American Funds, noted how it is possible for large fund companies to charge lower fees because of economies of scale, and said that this is an advantage investors should consider. "We believe that there are economies of scale that favor large fund families," Freadhoff said. "For example, if you had a global research network, as we do, that comes at a cost. When those costs are spread among more shareholders, the cost per shareholder declines."
Asset Management M&As Hit New $46.7B Record
Despite turmoil in the capital markets, mergers and acquisitions among asset management firms have hit a new record of 208 transactions worth $46.7 billion so far this year, according to Putnam Lovell.
Last year, there were a total of 192 such transactions with a deal value of $44.1 billion.
Cross-border transactions represented 40% of the deals among asset management firms.
"Long-term strategic concerns, amplified by the subprime-related fallout in the financial sector, will continue to stimulate deal flow in asset management during 2008," said Ben Phillips, managing director and head of strategic analysis at Putnam Lovell. "Companies emerging unscathed from the current crisis will seek to press their advantage and expand through acquisitions," Phillips added. And among those financial services companies hit with credit woes, they may sell their asset management divisions "to pay for their credit excesses," he said.
In terms of assets under management acquired, however, 2007 will not exceed the record $2.6 trillion in 2006 due to two of the largest transactions in history, Phillips said. Those were Bank of New York's acquisition of Mellon Financial and BlackRock's purchase of Merrill Lynch Investment Managers, which together represented $1.5 trillion in assets.
Through the middle of this month, the amount of assets acquired was $1.8 trillion.
T. Rowe, Principal, Fidelity Target-Date Funds Lauded
Target-date funds from T. Rowe Price, Principal Investors and Fidelity are the best, according to analysis of target-date funds by Lipper. On the other hand, those from Wells Fargo, MassMutual and NestEgg made the bottom of the list.
Lipper analyzed 30 target-date funds designed for people planning to retire in 2030 and ranked them by performance for each of the past 12 quarters ended this past September.
"Clearly, there is more to choosing a target-date fund than using a ranking based on past performance, but our rankings are a good way to winnow the large group of possible target-date funds to a more manageable handful," said Lipper Research Director Andrew Clark.
Fund Performance Improving at Fidelity
Buoyed by an additional $100 million investment in research over the past two years and the market again favoring growth stocks, Fidelity fund managers once again have the magic touch, according to a report from Morningstar Analyst Dan Lefkowitz.
Sixty-four percent of Fidelity's equity funds are performing better than the averages of their peers, up from 49% in 2006. Thirty-six percent of these funds, including some of Fidelity's most popular and best known, are in the top quartile. Fidelity Contrafund, for instance, fell four percentage points behind the Standard & Poor's 500 Index last year but is 12 percentage points ahead of it this year.
And according to Fidelity, diversified funds are doing even better, with 92% of them beating their benchmarks over the past year and 78% accomplishing this over the past three years.
"I'm excited by the performance we've put up," Walter Donovan, president of equities at Fidelity, told The Wall Street Journal, adding that Fidelity is much more discriminating today about the experience of the research analysts it hires.
"For a better performance year," Lefkowitz said, "you'd have to go back to 1995."
529 Plan Industry Debates Merits of National Ads Over Grassroots Marketing
The 529 industry, faced with the dismal fact that 56% of parents don't know about these college savings plans, is debating whether to launch a national advertising campaign or to reach parents on a more individual basis through a grassroots marketing campaign, Investment News reports.
"We are well aware of the fact that awareness of 529 plans is not where we as an industry wish it to be," said Jackie Williams, chairwoman of the state administration group College Savings Plan Network and executive director of the Ohio Tuition Trust Authority. The College Savings Plan Network is leaning in favor of a major national ad campaign and is currently looking to hire an agency and to partner with a company, not necessarily a financial services company, to help fund the effort.
Besides finding that 56% of parents in America don't know what a 529 plan is, Upromise learned through a survey that only 12% have opened a 529 plan, results that Upromise Vice President of Marketing Liz Robinson called "incredibly scary."
But unlike the College Savings Plan Network, Robinson believes the way to raise awareness is through "peer-to-peer communication. We need to drive the message into the community and get into schools" and parent-teacher associations, she said.
Scott Gates, director of the 529 program in Kansas, concurred: "A 30-second TV or radio spot does not sell 529s. You have to get out and pound the pavement and talk to people about them." In fact, Kansas promotes its 529 through personal meetings with financial advisers throughout the state. Iowa takes a different, though still personal, approach, by promoting its 529 program at state and county fairs.
Assets in 529 plans are growing at a good clip, but they are still low, according to the College Savings Plan Network. In the third quarter, they stood at $127 billion, 31% higher than the third quarter of 2006.
Fred Alger Bullish on U.S. Growth Equity Stocks
Despite the impact the subprime crisis has immediately had on mortgage and other financial services companies-with the financial services sector of the S&P 500 Index declining nearly 22% so far this year-U.S. equities, particularly growth stocks, are in a strong position, according to the latest market commentary from Fred Alger.
"From our vantage point, while the fallout from the subprime mortgage mess will be bad on both the consumer economy and the financial system, it will not trigger a systemic crisis either in the United States or globally," according to the report, "A Time for Growth (Even if it Doesn't Feel Like it)." Specifically, the authors of the report, Fred Alger Chief Executive Officer Daniel C. Chung and Chief Economist Zachary Karabell, point to strong balance sheets. Revenue at U.S. companies
has grown 10% over the past year, compared to nominal GDP growth of 5%. "Outside of specific sectors directly affected by the mortgage crisis, strong earnings remain the predominant story of companies," according to the report.
Nonetheless, the price/earnings multiples of these companies have contracted, while those of companies overseas have expanded. "The vital point here is that U.S.-listed companies are benefiting from many of the same global growth trends as their global peers, and yet, their stocks remain unloved. The market has hardly been granting U.S. growth companies any premium for their growth," according to the report. "All of this means that U.S. equities in general, and growth stocks in particular, are in a very advantageous position, and, we believe, poised for gains."
Automatic Retirement Tool Usage Triples: Principal
In the past year, the number of employers offering either a target-date fund, automatic 401(k) enrollment or automatic contribution rate increases has tripled, with more than 30,000 employers of the 38,600 that The Principal serves using at least one of the three.
"While national savings rates are still critically low, data from [our report] proves that automatic, do-it-for-me tools are helping to move the savings needle in the right direction," said Barrie Christman, vice president of individual investor services, retirement and investor services at The Principal. "We saw that in 2005, and the positive trend continued, and even accelerated, in 2006," he said.
SEC Distributes $31.5M To MFS Investors
The Securities and Exchange Commission on Tuesday distributed $31.5 million to more than 150,000 MFS Investments investors whose holdings were negatively impacted by market timing in the funds, the first payment of a total $306 million the SEC will make.
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