Plus, Vanguard merges muni funds, Putnam makes more changes, and more.
By Wenli Tan | 11-06-08 | 03:55 PM | Email Article

A number of good funds reopened this week, including moderate-allocation offering  Oakmark Equity & Income , foreign small/mid growth Fund Analyst Pick  Vanguard International Explorer , and precious-metals Analyst Pick  Vanguard Precious Metals and Mining .

Wenli Tan is a fund analyst at Morningstar.

The $12.5 billion Oakmark Equity & Income has lost less than its peers in the last turbulent year, but that hasn't stopped shareholders from leaving the fund. Outflows have increased as the fund's managers are finding more opportunities, comanager Clyde McGregor said in a news release. McGregor and comanager Edward Studzinski have an excellent track record. The fund ranks first in its category over the trailing three-, five-, and 10-year periods ending Nov. 5, 2008, and has a low 0.83% expense ratio. Also, both managers have a significant amount of their own money invested in the fund.

Vanguard International Explorer, which is run by Matthew Dobbs and his team at subadvisor Schroder Investment Management, first closed in August 2004 when it had $1.4 billion assets to preserve its ability to invest in less-liquid international small-cap stocks. In recent months shareholder redemptions combined with market declines have shrunk the fund's asset base to $1.1 billion as of Oct. 31. The fund is an attractive option for those seeking exposure to this often-volatile segment of the global market. Dobbs pays more attention to valuation than his peers and keeps the portfolio diversified across sectors and regions. He also keeps a below-average stake in emerging-markets stocks. Those factors have helped the fund lose less than its rivals for the year to date. This approach has led to competitive returns over the long haul as well. The fund has a dirt-cheap 0.35% expense ratio and requires a minimum investment of $25,000.

Vanguard Precious Metals and Mining, run by manager Graham French of subadvisor M&G Investment Management, closed in February 2006 to preserve his investment flexibility. Sharp drops in metals and other commodity prices have hurt the fund recently. It has fallen 57.3% for the year to date through Nov. 5, 2008, and resides in the precious-metals category's basement. Those losses and investor redemptions have reduced the fund's assets to $1.7 billion, less than a third of its June 2008 peak of $5.7 billion. Recent losses expose this fund's and this narrow sector of the market's risks, but this fund remains a worthy choice for those looking for exposure to precious-metals stocks. French is a bottom-up stock-picker who looks for companies trading below his estimates of their intrinsic worth. His portfolio is not only diversified across a variety of metals such as nickel, platinum, copper, and gold, but it also includes fertilizer and energy companies. With a 0.28% expense ratio the fund also is one of the cheapest precious-metals funds. The fund requires a minimum investment of $10,000.

Vanguard to Merge Muni Offerings
Vanguard has closed the $3.2 billion  Vanguard Insured Long-Term Tax-Exempt  to new investors in preparation for the fund's merger with the $2.8 billion  Vanguard Long-Term Tax-Exempt  on Dec. 12, 2008. "The municipal bond market has changed to a point where insured bonds provide little, if any, additional benefit over high-quality uninsured credits," said Vanguard CIO Gus Sauter in a news release. The merger raises no immediate concerns. Long-Term Tax-Exempt is an Analyst Pick and has a higher-quality portfolio, a topnotch management team, and the same 0.15% expense ratio.

Putnam to Revamp Sector Funds and Launch New Offering
On Jan. 2, 2008,  Putnam Utilities Growth & Income  will change its investment policy and its name to Putnam Global Utilities. Currently, the fund is divided into five sleeves: roughly 70% of assets is in U.S. electric and natural-gas utility stocks, picked by lead manager Michael Yogg; 15% is in global telecom stocks, picked by Craig Goryl; 10% is in European utilities and 5% in Asian utilities, picked by Vivek Gandhi and Matthew Doody; and between 0% and 10% in utility bonds, picked by Kevin Murphy. Going forward, the fund will no longer invest in telecom stocks and utility bonds. And true to its new moniker, the fund will invest more heavily in international stocks. The fund will also be allowed to short sell. Putnam will also impose a 1.00% redemption fee on shares that are redeemed within 90 days of purchase.

Stock fund  Putnam Health Sciences  also will be allowed to invest internationally and become Putnam Global Health Sciences. And as reported earlier, Putnam is launching a number of sector funds in early 2009. Ultimately, the firm will have a fund for each of the nine MSCI global sector subindexes.

Putnam is also adding an all-equity option to its suite of asset-allocation funds, led by manager Jeff Knight. Putnam Asset Allocation: Equity will invest roughly 75% of its assets in domestic stocks and 25% in foreign stocks. The fund will focus on large- and mid-cap stocks in developed markets. The fund's A share class will charge 1.38%.

We're wary of Putnam's latest round of fund changes. Putnam's existing sector offerings have been mediocre at best and many of the new funds' managers have no public track records. Knight's record at the existing asset-allocation offerings isn't impressive.

Neuberger Berman Managers Jump Ship
Milu Kromer, comanager of  Neuberger Berman International , has left Neuberger Berman, Lehman Brothers' asset-management arm, for Cramer Rosenthal McGlynn. Also, Steven Brown, lead manager of Neuberger Berman Real Estate Trust , has left for American Century. At CRM, Kromer will be responsible for establishing an international-stock research team and international and global investment strategies. Brown will take over as manager of  American Century Real Estate , which has been run by Kay Herr of subadvisor JPMorgan Investment Management. These departures come as Neuberger Berman's ownership remains uncertain. Private-equity firms Bain Capital and Hellman & Friedman's $2.1-billion joint bid for the firm was nixed by the bankruptcy court, which has ordered for the auction to continue.

Fidelity to Cut 1,300 Jobs as Assets Slump
Fidelity Investments announced on Thursday that it will lay off approximately 1,300 employees in November and plans more job cuts in the first quarter of next year. Fidelity isn't alone with its decision. Legg Mason, Janus Capital Group, AllianceBernstein, and many others have made similar announcement in recent weeks as shareholder redemptions have reached record highs. Fidelity spokeswoman Anne Crowley reassured that this round of job cuts will not affect the investment staff, including portfolio managers, analysts, and traders.

BlackRock's Take on the Global Credit Crisis
In a recent market report, Bob Doll, BlackRock's CIO of equities, and Peter Fisher, the firm's co-head of fixed income, say the global economy is sliding into a recession for the first time since the 1970s. "Looking ahead, we expect most developed economies will contract for two or three consecutive quarters," they wrote. The team doesn't paint a pretty picture for emerging markets either. "Some are likely to maintain positive growth rates while others experience zero growth, but overall emerging market growth will likely slow sharply," they wrote. In this environment, higher-yielding bonds, particularly non-financial corporate debt, offer attractive opportunities, but "a focus on quality is critical," they said. And while they don't think the worst is over for the financial sector, Doll and Fisher said some larger global banks look like values.

Securities mentioned in this article



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Wenli Tan does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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