Special Program Root Tag

Emerging market investors’ exposure to external debt has increased drastically, according to Dow Jones. Exposure climbed back into positive territory last month after having fallen to a record low level in September, according to a survey by JPMorgan. Inflows to the asset class have been strong since the beginning of the year, sustaining momentum from 2006. Asia-Pacific pension funds will make their first ever allocations to emerging market external debt in the next two months, JPMorgan notes. Strategic inflows were around $400 million in the first three weeks of January, down from $2.5 billion last December. However, mutual funds have posted $1.1 billion inflows in the last four weeks, the survey found. “According to this month’s survey, investors do still anticipate very strong institutional inflows in the first quarter, and this is expected to accelerate and should continue to underpin the market,” the report stated. The survey had 305 responses from investors managing $562 billion in emerging market fixed income and foreign exchange assets. 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 has fined Kelmoore Investment $100,000 for misleading investors that it was only charging them 1% of assets under management when, in fact, fees for the five funds it managed between 1999 and 2005 were actually as high as 3.63%. Internally, Kelmoore distinguished between advisory and brokerage services, when, in fact, both those services were for managing the funds. Thus, the SEC said, factoring in the brokerage services, the fees were actually much higher. “Kelmoore owed its mutual fund investors a duty to provide a fair and accurate representation of the fees they were being charged,” said Helane Morrison, district administrator of the SEC’s San Francisco office. “Instead, the firm’s misleading disclosures served to bury the real costs of Kelmoore’s mutual funds.” Kelmoore agreed to the settlement and to reform its compliance policies without admitting or denying the charges.

As retirees begin rolling trillions of dollars out of their 401(k) plans, large brokerage houses will likely be among the first places they turn, according to Dow Jones. A Cerulli Associates report shows that the vast networks of financial advisers affiliated with big firms will likely recommend their customers to transfer 401(k) money to bank Individual Retirement Accounts. “It’s all about who has the relationship,” said Tom Modestino, a senior Cerulli analyst and author of the report. Those already controlling employees’ 401(k) plan administration are likely to be among the first retirees turn to when looking for a place to move their money, he said. Citigroup’s Smith Barney division has seen a 25% jump in demand from Baby Boomers of all income ranges looking for Rollover IRAs, according to managing director Ellen Beslow. “For many people, it’s the largest sum of money they will see in their life. They don’t want to make a mistake,” she said. Investors also want to se the money they’ve accumulated last, encouraging them to seek professional advice. Fidelity,the largest 401(k) provider, has made concerted efforts to retain clients, emphasizing that rollovers are not part of a transaction, but rather an overall strategy. Rick Meigs, president of the 401Khelpcenter.com noted that brokers are working hard to improve their connection to clients, but there is more to be done. “Most of the plan providers are not doing a good job of capturing these rollover dollars,” he 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.

As energy index funds buy big portions of agricultural futures, some traders and producers are growing concerned, according to The New York Times. The Commodity Futures Trading Commission recently released a survey showing that index funds control between 20% and 50% of all futures contracts for commodities from corn to live cattle on the major exchanges including New York, Chicago and Kansas City. On the Chicago Mercantile Exchange, for example, funds control 47% of live hog and 36% of live cattle contracts as well as 40% of wheat and 21% of corn contracts. “These are jaw-dropping numbers,” said Dan Basse, president of Chicago-based agricultural researcher AgResources. Agricultural markets typically are less liquid than oil or gas, for example, and analysts warn that the index funds’ interest may increase volatility. The result could be increased prices from the floors of the exchanges to the shelves of local grocery stores. “It will cost everybody, including the consumer,” said Basse. Since 2005, the index commodity market, seen as a high-performing alternative to stocks, has increased from $80 billion to $110 billion. Goldman Sachs is the leader, controlling about $60 billion in commodities indexes, with about 20% of the energy-focused assets it allocated toward agriculture and livestock. The Dow Jones-AIGindex hovers between $30 billion and $40 billion, with about 40% in agricultural futures. “Demand is considerable,” said Eliot Geller, managing director at Jeffries, which has recently entered a joint partnership with Reuters and CRB. John Brynjolfsson, manager of the Pimco$12.1 billion Commodity Real Return Strategy, said that Baby Boomers approaching retirement especially like these high-return funds. Prices for grains, corn and wheat are already at record highs, due to demand for ethanol and transportation costs. The Chicago Board of Trade last week increased the risk capital required to trade corn futures by $338 to $1,215. Livestock has likewise been high. “Everybody is scrambling to understand the implications of the funds’ presence in the market on our ability to manage our risks,” said Gregg Doud, chief economist for the National Cattlemen’s Beef Association. Using the example of the 2003 discovery of a Mad Cow-infected head in Washington that pushed live cattle prices down 16%, he said it’s unclear if the funds would pull out after such an event, and what the effect on retail consumer prices would be. Such concerns led the Commodity Futures Trading Commissionto separate index funds from other traders in weekly commodities reports. 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.

After an abundance of hedge fund managers flocked to hot commodities last year, now investors are expressing concern, according to The Wall Street Journal. The number of investment pools that trade commodities futures has mounted to more than 100 from 60 or so a year ago, said David Mooney, who runs a fund of commodity hedge funds for United Kingdom-based New Finance Capital. Assets of the 100 funds he tracks have grown to more $24 billion from $14 billion, both from profits and new investor money, he noted. However, in the last year, bad energy bets have led to the closure of three hedge funds. Some anxiety stems from the fact that the commodities boom has been showing its age. Prices are slumping in key markets from oil to copper, despite large increases in some agricultural markets. Top-performing commodity hedge funds have never been more difficult for investors to get into. However, middle-of-the-pack funds may have a harder time attracting and keeping clients’ money this year. Some institutions that divvy up money to hedge funds say they are reconsidering whether to take money off the table. A few are asking managers that invest in multiple sectors to decrease their commodities exposure. Another likelihood is that investors will start to bet on hedge funds that concentrate on other commodities, such as grains and metals, and ease up on those focused on energy. London’s GAM, which invests about $23 billion in hedge funds, is shrinking back on commodities exposure in oil and gas markets, and moving toward funds that trade agricultural products and specialized products, such as one hedge fund that invests in rubber. Nonetheless, picky investors might be getting out of commodities for the wrong reasons. They could miss a run-up in an array of markets, since many analysts argue the current commodities slowdown is just a temporary leveling-off. Also, many other institutions continue to pour money into commodities as a diversification strategy.

The Internal Revenue Service is scrutinizing donor-advised funds for possible abuse, according to Dow Jones. These funds allow an investor to add money to an account from which gifts are made to their charities of choice over time. A donor may deduct the full amount of the initial contribution from his tax return. The IRS has concerns, one being that funds have been used as tax-free slush funds for donors. The Pension Protection Act of 2006, passed in August, for the first time defined the funds in the tax code and also enforced fines and penalties for improper gifts. The IRS is worried “that people are using the donor-advised funds for personal expenses like tickets or tuition,” said Charles B. Gordy, managing director and senior planned giving officer at Bank of New York. An example of abuse could be if a secondary school waved tuition payments for a child of a parent who gave a donor-advised gift to the school, said Victoria Bjorklund, a partner and head of the exempt organizations group at Simpson Thacher & Bartlett, a law firm in New York. The Pension Protection Act took a group of financial instruments that have been unregulated for decades and made them “a highly regulated area,” said Bruce Makous, vice president for development at the Multiple Sclerosis Association of America and president of the Planned Giving Council of Greater Philadelphia. Makous has been a critic of certain aspects of the funds, stating that charities sometimes give kickbacks to the sponsoring organizations. For example, a sponsoring organization that directs a gift to a certain charity might be rewarded with a contract to mange the money for the charity, he said. “I think that some charities are concerned about new regulation that might come down the pike and are looking at their practices,” said Makous, who has advised a congressional committee on donor-advised funds. “There’s pretty widespread concern about additional regulation of donor-advised funds.” On the other hand, others say donor-advised funds are thriving and need not fear the recent scrutiny. The IRS has become aware of some bad practices and has a right to see that those practices are eliminated, said Bjorklund. “I’m not aware that the IRS had any intention or desire to eliminate or harm the operation of donor-advised funds, which I think are a very valuable part of the charitable-giving sector, she 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.

Despite the fact that independent investment advisory firms are growing at an exponential rate, their unfocused business development models might hinder their success, according to a report, “Achieving Growth with the Right Business Development Structure,” by Schwab Institutional.

William Lyons, president for 10 years and chief executive officer of six and a half years at American Century Investments, is retiring. Jonathan Thomas, executive vice president and chief financial officer, will assume Lyons’ duties March 1.

CIBC lost a computer backup file containing sensitive information on 470,000 current and former customers of its Talvest Mutual Funds, the company announced Thursday. CIBC lost the file when moving it between offices.

After trailing the S&P 500 last year and delivering the worst returns for his fund in nearly 10 years, Will Danoff, skipper of the $69 billion Fidelity Contrafund, has sold energy stocks, particularly oil and gas, and bulked up on financial services, Bloomberg reports.

The top-selling funds of 2006 were among the best choices, writes Morningstar’s Russel Kinnel. Instead of chasing performance and buying into such highflying funds as those focused on Russia, China or real estate, investors made sounder decisions last year than usual, he says.

The Securities and Exchange Commission announced Thursday that Fred Alger Management and Fred Alger & Co. will pay $40 million to settle charges that the firms allow both market timing and late trading in the Alger Fund.

Benefit Systems, a 401(k) administration company based in Austin, has started a program to put money in the pockets of the homeless there, while also helping them start savings accounts.

TCW Group has launched four asset allocation funds that mix equity and fixed income strategies. Called the TCW LifePlan Fund Series, they are designed for various risk tolerances and individual investment objectives.

Mellon Financial announced Wednesday that its fourth-quarter earnings rose 14% to $237 million, up from $208 million. But investment management fees, primarily from mutual funds and hedge funds, rose 52%.

Charles Fishkin, who joined the Securities and Exchange Commission in 2004 to head up a risk unit charged with detecting fraud, many say successfully, has left for a position with AllianceBernstein, Dow Jones reports.

Vanguard filed a registration statement with the Securities and Exchange Commission on Wednesday to offer exchange-traded shares on four existing bond funds: the Vanguard Total Bond Market Index, the Vanguard Short-Term Bond Index, the Vanguard Intermediate-Term Bond Index and the Vanguard Long-Term Bond Index funds.

While they’re already popular, exchange-traded funds are looking to boost their growth further by getting onto 401(k) platforms, Dow Jones reports.

More than half of all investments to long-term funds in the first 11 months of last year went to international funds, The Boston Globe reports. And even domestic funds are increasing their investments in international stocks.

Dozens of brokerages failed to fully compensate mutual fund investors for breakpoints owed to them for purchases in 2001 and 2002, The Wall Street Journal reports, and the NASD is expected to take enforcement action against them.