Fund Times: Fidelity Announces Fee Cuts
Plus news on Hartford, Franklin Mutual, and more.
Ask and you shall receive? As of May 1, 2005, Fidelity has removed its 0.08% management fee for all 10 of the Fidelity Freedom Funds. While we'll try not to get hurt patting ourselves on the back, we had called on Fidelity to initiate this move in a February Fund Spy column. We had argued that its largest competitors, Vanguard and T. Rowe Price, don't charge anything on top of the underlying funds fees, and it doesn't make any sense for Fidelity to, either, unless it's just to further pad its pockets.
This move is commendable, and fund companies should do more to ensure that savings are continuously passed on to shareholders. That said, it's only one step in the right direction for these funds. We'd also like to see Fidelity tweak the overall lineup of underlying funds by removing some of the redundant funds and replacing them with better options. More could also be done to improve the diversification of the funds. In particular we'd like to see a better international and domestic small-cap presence.
Hartford Launches New Funds
The Hartford Financial Group launched three new funds, Hartford Capital Appreciation II, Floating Rate, and Select Mid-Cap Value, on April 29.
It strikes us that these funds are costly. Capital Appreciation II's expense ratio will be temporarily capped at 1.6%, while its typical front-load large-blend rival charges 1.13%; Floating Rate will be 1.25%, in line with other bank-loan peers' 1.25%, although through April 29, 2006, expenses will be capped at 0.60%; and finally, Select Mid-Cap Value will be capped at 1.6%, also higher than its typical front-load mid-cap value rival's 1.35%. Also, there are management fee break points, so as the fund's net assets rise, the overall expense ratio should fall. That said, in its present format the fees won't fall that much, since the breakpoints end at $500 million for the Floating Rate Fund, and $1 billion for the other two.
The story on Capital Appreciation II is interesting. Despite its name, it won't resemble Hartford Capital Appreciation (ITHAX) as much as investors might first think. For example, the successful manager of the longstanding Capital Appreciation strategy, Saul Pannell of Wellington Management, will run only a 5%-15% sleeve of the new fund's assets, per the prospectus. The rest of the fund will be divvied up among four other managers from Wellington, Frank Catrickes, Nicholas Choumenkovitch, James H. Averill, and Michael Carmen. They will focus on special situations, global opportunities, value, and growth themes, respectively. Our beef is not that the other managers will be unsuccessful, or are unqualified in their own right--indeed, Carmen also runs the solid Growth Opportunities Fund (HGOAX), and Averill runs Value Opportunities (HVOAX)--but we wonder, in naming the Capital Appreciation II fund, if Hartford was attempting to piggy-back on the considerably different Capital Appreciation's success.
Mutual Series Loses Key Manager
Star manager David Winters left Franklin Mutual Advisers, LLC, where he managed Mutual Shares (TESIX), Mutual Beacon (TEBIX), Mutual Discovery (TEDIX), and Mutual European (TEMIX) effective May 10, 2005. Combined, Winters had overseen a little over $30 billion, including $4 billion in accounts outside of the mutual funds offered for sale in the U.S. He was also Franklin's chief investment officer from April 2001 until his departure and was chief executive officer until April 2005.
Winters' loss is only the latest in a string of departures at Franklin Mutual. Indeed, Winters was one of the last of the original group of managers who worked with legendary investor Michael Price at Mutual Series, which became Franklin Mutual when Franklin Resources (BEN) bought it in the mid-1990s. Moreover, the firm has experienced a lot of manager turnover in the past few years since Michael Price left in mid-2001.
According to a recent announcement, however, Franklin Mutual veterans Peter Langerman and Philippe Brugere-Trelat are rejoining the firm. Depending on how actively involved they are, that should be a positive. As part of their return, Franklin Mutual will be folded into a new value group to be jointly overseen by Langerman and Bill Lippman of Franklin Balance Sheet Investment (FRBSX). The investment divisions will remain separate. Even so, we have been concerned about the depth of talent at Franklin Mutual Advisers for some time. It is still too early to determine if Langerman can steady the ship, but at least initially, we believe the departure of Winters severely diminishes the appeal of the above-named offerings.
Winters left Franklin Mutual to start his own firm, Wintergreen Advisers, LLC. According to an SEC release, the Wintergreen Fund will be a no-load fund that invests in value stocks, with arbitrage, bankrupt companies, and distressed corporate debt themes.
Doug MacKay, who has served as assistant manager on White Oak Select Growth (WOGSX) since its 1992 inception, has left Oak Associates as of May 12, 2005. MacKay played a big role at the firm, including overseeing Red Oak Technology Select (ROGSX) and assisting on Pin Oak Aggressive Stock (POGSX).
Van Kampen Emerging Markets Income (MSWAX) will be terminated on June 24, 2005, per an SEC document released on May 9, 2005. Its few remaining shareholders--assets are only half of what they were in 1999--should thank Van Kampen for finally throwing in the towel on this perennial laggard. Over the past six years, it has failed to break out of the emerging-markets bond category's bottom quintile. That's especially poor considering that emerging-markets debt has been on a hot streak over that same time, earning the typical fund's shareholders double-digit returns, versus this fund's frequent annual losses. We wonder what took Van Kampen's board so long to pull the plug.
Lord Abbett Mid-Cap Value (LAVLX) and Small-Cap Value (LRSCX) will close to new retirement plans and mutual fund advisory accounts on July 29, 2005. Note that this isn't the first time that Lord Abbett has acted to slow the funds' intake. Mid-Cap Value has been shuttered to new nonretirement plan investors since Sept. 30, 2003, while Small-Cap Value has said "No thanks!" to these folks since July 2001. The funds will remain open to existing shareholders and to any new investors in retirement plans that currently offer them.
Dieter Bardy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.