Investment funds

At the hearing on target-date funds Thursday, target-date fund managers, along with the Investment Company Institute, asked the Securities and Exchange Commission to butt out of asset management.ICI General Counsel Karrie McMillan said interfering in the mix of assets would be unprecedented: “In the 70-year history of mutual fund regulation, the government has never regulated the investment choices of mutual funds. Nor should it start now.”“We strongly oppose any efforts to regulate the glide paths or other aspects of the investment design or construction of target-date funds,” concurred John Ameriks, a Vanguard principal.Fund executives also said they were opposed to labeling target-date funds conservative, moderate or aggressive, based on the mandate of their glide path and current holdings.But SEC Chairman Mary Schapiro countered that target-date fund losses last year ranged from minus 3.6% to minus 41%, with an average loss of 25%. “These varying results should cause all of us to pause and consider whether regulatory changes, industry reforms or other revisions are needed with respect to target date funds.”Financial planners who testified Thursday tended to agree with the SEC that a target-date fund’s name should give some indication of its level of equity and other risk exposure. “The name of each fund must bear some relationship to the way the fund is managed, that is, its glide path,” said Joseph Nagengast of Target Date Analytics, which provides benchmarks for target-date funds. “If a fund labeled 2010 is really targeted to land at 2040, it should be relabeled as a 2040 fund.”

In light of increased investor interest in money market funds and fixed income investments, Northern Trust has introduced the Northern Tax-Advantaged Ultra-Short Fixed Income Fund and the Northern Ultra-Short Fixed Income Funds.The funds are designed to offer higher yields than money market funds but less volatility than short-duration bond funds, and will invest in securities with maturities of six to 36 months. They have a minimum initial investment of $1 million and are designed for investors looking for a time horizon of at least one year. Both will make dividend distributions monthly.“As we continue to face uncertainty regarding an economic and financial market recovery,” said Colin Robertson, managing director of fixed income investments at Northern Trust, “investors have become increasingly interested in the potential benefits of having fixed income assets in their investment portfolios. For investors looking to get back into the market, the new funds are designed to provide opportunity for both higher yields than money funds and capital appreciation with minimal volatility.”

Ivy Funds has introduced the Ivy Municipal High Income Fund, to be managed by Michael Walls, who has been with the firm for the past 10 years.“We believe that the tax relief potential, coupled with the income potential that accompanies higher-yielding municipal bonds, makes this category an attractive one for investors building a diversified portfolio,” said Thomas W. Butch, president and CEO of Ivy Funds Distributor.In selecting investments for the fund, Walls said, he studies the macro-economic environment and credit risk associated with issuers. “We also look at interest risk and call risk as we attempt to maximize the potential reward for a given level of risk,” he said.Ivy Funds also noted that municipal bonds have structural characteristics that are different from other types of fixed income securities, and respond differently to changes in market conditions, such as changes in credit quality and interest rate policy—which help to reduce a portfolio’s volatility if properly diversified. Also, because the credit rating of municipalities is lower than the federal government, municipal bonds have a capacity to deliver higher yields.

Hedge funds returned 4.06% in May, the largest monthly gains since February 2000, according to the Credit Suisse/Tremont Hedge Fund Index. Year-to-date, hedge funds tracked by the index have risen an average of 6.72%.In the month, emerging markets funds were the strongest performers, delivering 6.96%. “The emerging markets sector has experienced a significant turnaround over the last three months, as risk appetite seems to be returning to the markets,” said Ovlicer Schupp, president of Credit Suisse Index. “Investors are encouraged by positive signs of global growth and risking commodities prices.”Year-to-date, emerging markets hedge funds are up 12.43%. Convertible arbitrage also did well in May, rising 5.81%; the category is up 19.12% YTD.

Long-term equity and bond mutual funds saw net inflows for the 13th week in a row, taking in $12.48 billion in the week ended June 10, bringing the total net flows for the past 13 weeks to just under $140 billion, the Investment Company Institute said.Flows to stock funds were $5.04 billion, up from $4.66 billion in the previous week. In this category, $2.03 billion went to U.S. stock funds, with foreign stock funds taking in $3.01 billion.Bond funds took in $6.92 billion, down quite a bit from the $8.46 billion they took in for the week ended June 3. Of this category, taxable bond funds saw inflows of $5.46 billion, and municipals saw $1.46 billion.Assets in money funds continued to decline, losing $62.9 billion, the highest level since last September, when investors yanked $120 billion from money funds in a single week due to the Primary Fund breaking the buck.

While the financial services industry largely embraced most of the Obama administration’s financial services overhaul, the idea of removing money funds’ $1 net asset value is causing widespread concern in the mutual fund industry.“If you float the value of a money fund, you’ve essentially destroyed the product,” said Investment Company Institute President Paul Schott Stevens. “We’re going to explain clearly why we believe a fluctuating [NAV] is a very bad idea.”The Securities and Exchange Commission is expected to propose new money fund rules next week, including a floating NAV for money funds. Another idea is disclosing the $1 NAV to the third decimal, which the ICI also opposes.But the Obama administration believes a floating value for money funds, along with imposed limits on risk, capital requirements and access to emergency liquidity facilities from private sources, will prevent a run on money funds that could endanger the entire capital markets, as what occurred last September when the Primary Fund broke the buck. In addition, the administration is calling on the President’s Working Group on Financial Markets “to assess whether more fundamental changes are necessary and to address systemic risk more directly.”The administration is asking for the Working Group to prepare its report by Sept. 15.At the same time, it warns that additional regulations on money funds, which are vital to the capital markets system and the day-to-day operations of corporate America, could have the opposite effect of driving investors into unregulated or less regulated money market investment vehicles.

Ninety percent of American investors are frustrated about financial losses in the past year, according to “Make the Move,” a survey by the Charles Schwab Corp. One in four is considering leaving their current financial services firm and/or financial adviser.

A U.S. district court has given investors in the Reserve Funds’ Primary Fund until July 22 to object to the Securities and Exchange Commission’s plan to distribute assets on a pro rata basis. Of the fund’s original $63 billion in assets, $4.55 billion has yet to be returned to investors.

With Putnam Investments, Legg Mason and Invesco AIM recently rolling out absolute-return funds that promise an upside regardless of the market’s condition, some wonder if that is possible.

For most Baby Boomers, even younger ones, the recession has done such a number on their retirement savings that they are gearing up to work longer, set aside more now and live a more modest lifestyle in their so-called golden years, USA Today reports.

While there have been reports of portfolio managers easing back into stocks, one-third of them are still sitting on record amounts of cash, SmartMoney reports.

As the Chinese middle class becomes increasingly familiar with investing, and the nation’s markets open up to international trading, its mutual fund industry is likely to experience incredible growth, Wall Street & Technology reports.

At the hearing on target-date funds that the Department of Labor and the Securities and Exchange Commission is holding tomorrow, the focus is likely to be on better disclosure of holdings.

In a survey of hedge fund executives attending the Global Alternative Investment Management conference in Monaco this week, 65% said they feared that the economic crisis will drag on, Reuters reports.Another 18% said things could even get worse. Only 17% said they thought it was over.“Bailouts [of banks] have worked somewhat, but problems have been transferred to governments,” said Peter Rigg, an executive with HSBC Private Bank who is one of the pessimists surveyed.Fifty-nine percent said they think Europe is suffering the worst, while only 35.5% said conditions are the most precarious in the U.S.“The worst problems are in western economies that have relied on leverage to grow. Economic power is going East,” said Jaime Castan of RMF Investment Management.But not everyone thinks that Asia is insulated, including Marc Lasry of Avenue Capital, who commented: “There’s a huge fiction out there that Asia is going to be fine, but it needs a strong U.S. and Europe to grow.”Asked how the crisis could compromise hedge fund strategies, executives said they were most concerned about liquidity, the lack of alpha and risk management. That said, the investment style that most, 28%, are optimistic about are distressed/event driven, followed by global macro (24%), managed futures (17%) and general arbitrage (10%).

High-net-worth investors are reordering their priorities when selecting investment providers, according to “New Horizon, New Behavior,” a study of 2,100 investors released by Barclays Wealth.

To help parents and their children alike manage their finances better, Wells Fargo is promoting online budgeting and savings tools available on its website, and releasing the findings of a survey of parents on their children that demonstrate a generational knowledge gap.

Only 376 hedge funds liquidated in the first quarter of the year, down 52% from 778 that shut their doors in the fourth quarter of 2008, Hedge Fund Research said. The number that liquidated in the first quarter represented 4.05% of the 9,050 total number of hedge funds, and the number that went out of business the previous quarter was 7.77%.

The number of people who believe their financial security is worsening is now 45%, down from 49% in April, a survey by Country Financial found.

The Department of Labor and the Securities and Exchange Commission have released the agenda and list of speakers at this Thursday’s hearing on target-date funds.

Hedge funds are returning to the practice of leveraging, with some levels as high as 50%, Reuters reports. Nonetheless, risk-taking, even by hedge funds, is not expected to return to pre-crisis levels.