Katie Rushkewicz Reichart, CFA, is an associate director of equity strategies for Morningstar.
Vanguard Growth Equity used to be a large-growth Analyst Pick, too. But we dropped it in 2008 after Vanguard hired Scotland-based Baillie Gifford to manage what eventually became half of the portfolio. Baillie Gifford has a solid record using a bottom-up, buy-and-hold strategy to pick core U.S. growth stocks, but adding them to Growth Equity's mix tamed what had been an aggressive, momentum-driven pure growth vehicle. Turner employed a feast or famine style that looked great in periods when growth stocks rallied and terrible when they flopped. It has spent much of the past decade flopping during an overall trying period for growth investors. From the time the fund joined the Vanguard family--ironically near the March 2000 peak of the technology and growth stock bubble--through the end of 2008 the fund lost an annualized 10.8%, far more than category average and the Russell 1000 Growth Index.
The fund under Turner was disciplined and capable of making up lost ground in a hurry, for example posting a nearly 39% gain in 2003, a year after losing 31% in 2002. But apparently Vanguard concluded that the fund's ups and downs were too much for shareholders to handle. Indeed, the fund's investor returns, which factor shareholder cash flows into a fund's results, were among the worst in Vanguard's stable.
Though Jennison is no shrinking violet, its buy-and-hold, fundamentally focused approach and the presence of Baillie Gifford are sure to take a lot of the edge off this fund. It's too early to say if the combination will deliver better results than Turner, but it is clear the fund will be cheaper. Its expense ratio will drop from 0.72% to 0.60%.
Marriages of Convenience
RiverSource Disciplined Equity
will absorb RiverSource Large Cap Equity
, pending shareholder approval. The $2 billion Large Cap Equity has struggled since its inception in 2003 and was recently taken over by Dimitris Bertsimas after former managers Nick Thakore and Bob Ewing left for Putnam
. The merger makes sense, as Bertsimas uses the same quant-based approach at $1.8 billion Disciplined Equity and could be a boon to investors if RiverSource decides to lower fees.
Neuberger Berman Large Cap Disciplined Growth
, a $33 million large-growth fund that launched in March 2008, will merge into $8 million Neuberger Berman Century
on April 9. The tiny Century fund has had a difficult time attracting assets but has been around longer than Disciplined Equity and has a solid track record. The impact should be minimal as both are run by the same team, consisting of John Barker, Daniel Fletcher, Daniel Rosenblatt, and Lawrence Fisher.
After being off-limits to new investors for seven years, Neuberger Berman Genesis
has reopened its doors. The small-blend fund joins a growing list of funds that have reopened as investors have skittishly pulled money out during the financial crisis. Though the fund was hit with some redemptions during 2008, it saw plenty of growth during its closure, with its asset base ballooning to more than $12 billion as recently as August 2008. Currently at $7 billion, it is one of the largest funds in the category, making its decision to reopen questionable. The fund has been one of the best-performing and least volatile funds in the category, but investors should be aware that it may be hampered by its size and won't necessarily offer pure small-cap exposure.
Lazard U.S. Small Cap Equity Value
has closed to new investors and will begin liquidating. The fledgling fund was the victim of poor timing, launching in April 2008 as the market started unraveling. Though the fund landed in the top quartile of the small-value category in the fourth quarter of 2008, it was no match for the market environment and decided to fold after attracting only $11 million in assets.
Allianz OCC Equity Premium Strategy
will liquidate on March 13. The large-blend fund had a consistently poor record since its launch in 2000 and had only $23 million in assets.
Legg Mason Partners Global Income
, a small world-bond fund that had the worst 10-year record in the category and just $20 million in assets, also announced that it will liquidate.
Wall Street will try to make a buck on anything, including its own catastrophe. As BusinessWeek reported
, the Nasdaq OMX Group recently launched the Nasdaq OMX Government Relief Index
, which tracks beleaguered companies that have gotten at least $1 billion in aid money from the Troubled Asset Relief Program, including Citigroup
, General Motors
, and American International Group
. A new ETF based on the gimmicky index may be in the works, but no major ETF shop has yet announced any plans.