Special Program Root Tag

The market squall set-off by subprime mortgages has not stopped Barclays from a Friday launch of its new mortgage-backed securities-based ETF, MarketWatch notes. Although the American Stock Exchange launch comes in the midst of concerns about mortgage-linked securities, the iShares Lehman MBS Fixed-Rate Bond Fund may be well insulated, analysts said. Still, it will have to overcome public perception to prove its place in investors’ portfolios. "These are not subprime mortgages and I wouldn't classify this ETF as a risky security," Greg McBride, senior financial analyst at BankRate.com, told MarketWatch. Subprime loans typically target lower-income house hunters who cannot meet the credit score and other requirements of other banks. With an expense ratio of 0.25% the new ETF instead tracks an index of investment grade fixed-rate mortgage-backed securities by government-sponsored mortgage issuers Ginnie Mae, Freddie Mac, through which all principal and interest go directly to investors and which are non-convertible. The underlying investments are 30, 20 and 15-year securities with more than $250 million in outstanding face values, according to Barclays. Rather than hold all 387 securities within the Lehman index as of February, Barclays Global Investors will use that group as a benchmark. Mortgage-backed securities can be high-yield as managers compensate investors for times when interest rates are low, and home-owners pay loans early, refinance or buy newer, bigger houses. Such events introduce uncertainty, and result in a drop in fund value, according to the ETF’s prospectus. "Because of prepayment and extension risk, mortgage-backed securities react differently to changes in interest rates than other bonds," the prospectus notes. "Small movements in interest rates (both increases and decreases) may quickly and significantly reduce the value of certain mortgage-backed securities." Some think the new ETF can’t avoid the sector fall out, though. "If real estate is all about location, and the stock market is all about timing, then this fund is wrong on both counts," said Jim Lowell, editor of MarketWatch's ETF Trader. Still, timing the launch of a new, regulated, product is always a challenge, and Matt Tucker, head of Barcalys investment solutions team, said that the firm’s interest is not in launching finds to meet fads anyhow. Instead the new product helps toward "filling holes" in its fixed-income product line, Tucker said. The firm now manages 15 fixed-income ETFs. Barclays is also trying to beat competitor Vanguard to the punch, and to protect its market dominance, which was earned, largely, though first-mover advantage. Some stress the need for such a high-yield product for investors seeking diversity. "These aren't the junk mortgages you read about in the papers," said Matt Hougan, editor at IndexUniverse.com. "Fannie, Freddie and Ginnie mortgages just don't have that much risk, even with the housing market imploding," he said, adding that the historical volatility of the ETF's tracking index has been "tiny." Herb Morgan, head of Efficient Market Advisors, said "there's a market" for a mortgage-backed securities ETF and expects the fund to pick up solid asset flows and trading volume. However, the new ETF could suffer from "headline risk" because even though the worries in subprime shouldn't impact the holdings, those fears will affect how the ETF is perceived, said Morningstar Inc. analyst Sonya Morris. "This ETF is fairly conservative for a mortgage-backed securities fund since the agency-backed mortgages must meet credit requirements," said Morningstar Inc. analyst Sonya Morris. The ETF could be used to diversify exposure to the bond market, and it "makes sense to own high-quality mortgage bonds" as part of a long-term portfolio, Morris said. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

Securities and Exchange Commissioners Paul Atkins and Roel Campos continue to publicly voice their opposing viewpoints on the value of requiring mutual fund companies to have Independent Board Chairmen, even as the rule itself continues to be tweaked, according to The Wall Street Journal. The rule, passed in 2004, which required fund boards to be 75% independent and lead by a non-fund-company affiliate, has been overturned in federal court twice. Last week, Atkins called justification for the independent chairman rule “tenuous” before a Washington audience. Last month, Campos gave a speech to fund directors in which he claimed, “The economic studies and current rulemaking record would fully support a 75% independent board and chair requirement.” Industry groups are likewise divided. Even the SEC’s Office of Economic Analysis concluded that “optimal governance structures are likely to vary from fund to fund,” in a December report. Fidelity Management & Research Company hired a Harvard Law professor to analyze the benefits. The result was a 100-page report submitted as part of the SEC’s request for comments that said even the SEC’s Office of Economic Analysis December assessment of the rule’s benefits shoed “optimal governance structures are likely to vary from fund to fund.” The Investment Company Institute-affiliated Independent Directors Council said in its statement that the reports failed to prove a financial root for the rule, and that funds should be able to choose for themselves. The Mutual Fund Director’s Forum, on the other hand, said that the reports actually bolster the case for independent directors in order to avoid conflicts of interest arising between fund companies and their shareholders. “Independent fund boards are ideally positioned to oversee and, if necessary, manage and resolve conflicts of interest,” the organization said in its statement. Likewise, Chicago-based fund rater Morningstar noted that interested directors have caused an erosion in the effectiveness of many boards. “As long as those conflicts exist, shareholders are not being serves as well as possible,” said Morningstar Analyst Laura Lutton. Shareholder groups such as Fund Democracy and the Consumer Federation of America have argued that the study fails to show that adding independent directors poses a burdensome cost for fund companies. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

The Securities and Exchange Commission will host another roundtable on extensible business reporting language (XBRL) beginning at 10 a.m. on Monday, March 19 at its Washington headquarters, with a simultaneous webcast open to all.

Having made a number of changes to its 529 college savings plan in 2006, Missouri announced Thursday that assets in its plan have now topped $1 billion.

Portfolio managers who concentrate on China obviously are proponents of the region, but even following the one-day 9% meltdown in China’s markets, many remain bullish, Investor’s Business Daily reports.

Weak long-term performance, inconsistent returns and a greater focus on advisers than on investors at mutual fund companies are prompting wealthy investors to turn elsewhere, The Wall Street Journal reports. Only 11 of 38 top fund families, or less than one-third, have the loyalty of affluent investors, according to a report from Cogent Research.

Although Morningstar has the finances to take on another acquisition—it recently completed four, three of them in 2006 and one last month—the company has no immediate plans to do so, CEO Joe Mansueto tells Reuters.

Much as in the U.S., small investors in Europe and Asia are flocking to hedge funds through windows such as hedge funds-of-funds and publicly traded investment firms that invest in hedge funds, The Wall Street Journal reports.

Kurt Wolfgruber, chief investment officer at OppenheimerFunds, has been promoted to president. Wolfgruber will retain his responsibilities as CIO while also taking on the added oversight in the president’s role for the company’s retail and wealth management units.

Although hedge funds only recently began to lobby Congress and other Washington powerhouses to encourage them to back off on regulation, their efforts already appear to be making big strides, the International Herald Tribune reports.

As competition from hedge funds, private equity and alternative investments heats up, mutual funds are beginning to shake off their apathy for sound corporate management and taking a more active role in oversight of the companies in which they invest. Their hope is to improve returns.

In response to critics, most notably the U.S. Chamber of Commerce, the Securities and Exchange Commission is adhering to recommendations by President Bush that government agencies undertake economic analysis before recommending new regulations, Dow Jones reports. And its findings that the cost of implementing independent directors at fund boards may outweigh the benefits could undermine that proposal.

Although the market overall has been doused by subprime loans, individual mutual funds aren’t likely to have much exposure to the volatile sector, the Associated Press reports.

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.

The tax-free provisions of 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, a lawyer stated this week.

A number of websites have sprung up to educate investors about exchange-traded funds, MarketWatch reports. Those that aren’t free are quite expensive, but some of them are free.

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.

Lord Abbett announced Monday that Robert Morris, its chief investment officer for the past two years and a 16-year veteran of the firm, will retire by the end of this month. Morris joined the firm in 1991 as director of equity research and was then promoted to director of equity investments.

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.

Although American workers are saving more for retirement, they still aren’t saving enough and are likely to face a more expensive retirement due to longevity, healthcare and curtailed working years, The Fidelity Research Institute reported Monday.