The return of David Iben, plus new short-duration bond funds from Fidelity, Edward Jones' first-ever mutual fund, a new global industrials fund from T. Rowe Price, and more.
By Morningstar Manager Research | 11-14-13 | 04:50 PM | Email Article

On Wednesday, Fairholme Capital Management disclosed that it is making a long-shot offer to buy parts of mortgage giants Fannie Mae and Freddie Mac from the government.

Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.

The parts of the two government-sponsored enterprises that Fairholme hopes to buy are the portions that insure mortgage-backed securities from Fannie and Freddie.

In a statement, Fairholme CIO Bruce Berkowitz, who was named Morningstar's Domestic-Stock Fund Manager of the Decade in 2010, announced that his proposal would answer "the bipartisan call for significantly more private capital in the mortgage market." Under his proposal, Fairholme would lead a group of investors in bringing about $52 billion of private capital to support credit risk on more than $1 trillion worth of new mortgages. The proposal also would allow for the liquidation of Fannie and Freddie, ending their federal charters and concluding "the unsustainable federal conservatorship" of Fannie and Freddie.

"We know many people in and outside of government are working on the redesign of the mortgage market, and trying hard to get it right for America," Berkowitz said in the statement. "Fannie and Freddie's business model was not consistent with insurance industry best practices. However, in this country we fix valuable businesses by restructuring; we do not simply throw them away. Fairholme is prepared to do its part to help effectuate this restructuring and to be long-term owners of the insurance businesses, without the need for any Federal assistance or special Federal status."

Fairholme would offer $34.6 billion in exchange for preferred stock in Fannie and Freddie owned by a group of hedge funds. Another $17.3 billion in preferred shares would be raised in a rights offering. Berkowitz has a vested interest in Fannie and Freddie, as Fairholme currently holds preferred stock with a face value of about $3.5 billion in the two government-sponsored enterprises, which the government seized control of in 2008 as they were heading toward bankruptcy. However, those preferred shares currently are trading at less than 40 cents on the dollar. Under Berkowitz's proposal, those preferred shares would be converted to common stock at 100 cents on the dollar.

Berkowitz's bid comes amid proposed bipartisan legislation in Congress to transform the United States' $9.4 trillion mortgage-finance system. Under that proposed legislation, Berkowitz's preferred shares in Fannie and Freddie are at risk.

We view Berkowitz's bid as a long-shot at best. It would require approval from the Federal Housing Finance Agency, which currently lacks a Senate-confirmed director after Republican senators recently filibustered President Obama's nomination of U.S. Rep. Mel Watt to the job, as well as the U.S. Treasury Department and Fannie and Freddie's other investors. And given some recent comments from White House officials, it's not likely that the government would sign off on his plan.

Former Tradewinds Head Launches New Global Offering
David Iben, the former chief investment officer of Nuveen's Tradewinds Global Investors, has returned to the mutual fund world as manager of the recently launched Kopernik Global All-Cap .

Iben built a successful record managing Nuveen Tradewinds Value Opportunities  from 2004 to 2012 and Nuveen Tradewinds Global All-Cap  from 2006 to 2012. Global All-Cap's 8% annualized return under Iben outpaced more than 95% of world-stock peers.

Iben left Tradewinds in March 2012 to head a value team at Vinik Asset Management--a hedge fund firm founded by Jeff Vinik, former Fidelity Magellan  manager and current owner of the Tampa Bay Lightning professional hockey team. In May 2013, however, following a period of lagging performance, Vinik closed the $6 billion fund and returned clients' money.

In July 2013, Iben and a team from Vinik founded Kopernik Global Investors. (The firm's name was inspired by Renaissance astronomer and mathematician Nicolaus Copernicus, whose name was Mikolaj Kopernik in his native Polish.) The firm offers three strategies, though only one mutual fund: the Kopernik Global All-Cap fund, which launched on Nov. 1, 2013, and will invest at least 40% of its assets in non-U.S. stocks. The fund currently holds roughly $85 million in assets.

Fidelity Targets Interest-Rate Shy Investors With New Short-Duration Funds
With the launch of two new short-duration funds and the repositioning of a third, Fidelity is targeting investors fearful about the potential for rising interest rates.

The first fund, Fidelity Conservative Income Municipal Bond Fund FCRDX, was launched this October with a focus on the short end of the municipal-bond yield curve, targeting a weighted average maturity of less than one year. In addition to its conservative interest-rate positioning, the fund focuses on investment-grade bonds and will be limited to 10% in BBB rated fare.

Slightly further out on the yield curve on the taxable side is Fidelity Advisor Limited Term Bond . In late October, Fidelity repositioned the former Fidelity Advisor Intermediate-Term Bond with a short-term mandate and launched a new no-load share class. According to manager Rob Galusza, the fund typically will be run with a duration of less than three years and will focus on a mix of credit sectors including corporates, commercial mortgage-backed securities and asset-backed securities, as well as government agency-backed mortgages.

Finally, when it was launched earlier this month, Fidelity Short Duration High Income joined a growing number of credit-intensive funds that target the short end of the high-yield bond universe. The fund is managed by Matt Conti, manager of Fidelity's relatively conservative entry in the high-yield category, Fidelity Focused High Income , and Michael Plage, skipper of Fidelity Corporate Bond . In addition to investing in short-term high-yield bonds, the fund also will have the flexibility to invest in floating-rate loans and short-duration investment-grade bonds.

The funds join a number of others in the Fidelity lineup with a muted interest-rate profile, including Bronze-rated  Fidelity Short-Term Bond  and Fidelity Conservative Income Bond , which since its launch in spring 2011 has accumulated more than $3 billion in net assets.

Fidelity's expansion of its fixed-income lineup comes as investors have poured into bond funds with limited interest-rate exposure, particularly into nontraditional bond and bank-loan funds. Through Oct. 31, the bank loan Morningstar Category saw $54.3 billion in estimated net flows for the year to date, while $48 billion flowed into funds in the nontraditional bond category. While Fidelity offers a bank-loan fund, Bronze-rated  Fidelity Floating Rate High Income , the firm has not launched an unconstrained bond fund.

Edward Jones Launches Its First-Ever Mutual Fund
On Oct. 28, regional broker-dealer Edward Jones launched a proprietary, subadvised bond fund that is the firm's first-ever mutual fund. Historically known for its one-broker offices, Edward Jones launched the fund for the firm's registered investment advisor platform managed by subsidiary Olive Street Investment Advisers.

The new fund, Bridge Builder Bond , is managed by Olive Street but subadvised by three large asset managers: J.P. Morgan Asset Management, Robert W. Baird, and Prudential Investments.

The fund is not broadly available, however. It only is available to clients who are part of the firm's fee-based platform that was rolled out in 2008, which is known as Edward Jones Advisory Solutions and currently has total assets of $105 billion, or about 14% of the firm's assets under care. Bridge Builder Bond Fund launched with $2.8 billion in assets, but that does not represent some tremendous investor inflow into bond funds, particularly given the current outflows in the category. Instead, the $2.8 billion is part of a reallocation of client assets within Advisory Solutions. Firm officials have noted that the platform's rapid growth has meant that some Edward Jones clients hold large portions of some nonproprietary mutual funds, which can present challenges when rebalancing clients' accounts to align their portfolios with their investment goals.

The fund's launch is a departure for the privately held, suburban St. Louis-based broker-dealer, which historically has used outside money managers' funds and has not sold proprietary products.

An Edward Jones spokesman told Morningstar that no other mutual funds are planned at this time, although the firm is continuing to explore areas where they might make sense.

Edward Jones first had announced plans for the new fund back in August.

Securities mentioned in this article



Morningstar Rating Morningstar Analyst Report
With Morningstar Analyst reports you can get our expert Buy/Sell opinions on over 3,900 Stock and Funds
Morningstar Manager Research does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
Sponsored Links
Sponsor Center
Content Partners