Fund Times: News on AIM, Vanguard, American Century
We bring you this week's goings on in the mutual fund world.
AIM Investments is finally lowering 12b-1 fees on several funds. This move brings the firm into line with most of the industry. Previously, four AIM funds charged a 0.30% 12b-1 fee, 54 funds charged 0.35%, and one fund, AIM Global Equity (GTNDX), charged 0.50%.
The overall expense ratios for the affected funds will only fall a small amount. Based upon the average 1.46% expense ratio of 71 front-load AIM funds this is a step in the right direction, but more work needs to be done. AIM funds, in general, are now more in line with industry averages although we would like to see them do even better.
Do Vanguard Index Managers Eat Their Own Cooking?
The short answer is, not as much as we hoped. As part of our review for our Stewardship Grades, we've been poring over the new Statements of Additional Information Vanguard has been filing with the SEC. Recent SEC filings note that Vanguard employees as a group invest a "sizeable portion of their personal assets" in Vanguard funds, amounting to some $1.27 billion as of Dec. 31, 2004. The bad news is that the Vanguard index managers aren't committing a large amount to their own index funds. Michael Buek, manager of the Vanguard 500 Index (VFINX), invests only $10,001 to $50,000 in the 500 Index fund, and Gerard O'Reilly, manager of the Vanguard Total Stock Market Index (VTSMX) has a bigger investment ($100,001 to $500,000 range) in the Total Stock Market Index fund. Index bond managers are not much better: Ken Volpert, manager of Vanguard Total Bond Market Index (VBMFX), has only a $10,001 to $50,000 investment in that fund, one of three he manages, according to the filing. In the last case, though, we might cut Volpert some slack, because he may not need as much bond exposure in his portfolio at this time.
Scudder Parent to Sell Off Parts of Business
On July 7, in a somewhat anticipated move, Deutsche Asset Management, the parent company of the Scudder Funds, announced its plans to sell off bits of its Philadelphia- and United Kingdom-based operations. British manager Aberdeen Asset Management will acquire teams running U.S., non-U.S., and global fixed-income offerings, including Scudder Fixed-Income (MFINX), Scudder Income (SCSBX), Scudder Global Bond (SSTGX), and Scudder Emerging Markets Income (SCEMX), and a group running U.K. and global equities, pending the approval of several constituencies. (The impetus for the move was a strategic review that Deutsche initiated last September, which revealed that its London equity offerings weren't up to scratch and should be sold off. Apparently, it had to make the more-successful bond managers part of the deal to get suitors interested.)
We don't expect that much will change for shareholders of the Scudder Funds as a result of the deal. Scudder will continue as the advisor of the funds and is asking the funds' board and shareholders to approve the hiring of Aberdeen as a subadvisor. If approved, the same managers would stay in place, with no increase in fees. Given how well the managers have done at funds such as Scudder Fixed Income, shareholders would be wise to support the move.
In 2004, after learning that Deutsche had signed off on market-timing deals for some of its funds, and reviewing its lineup of offerings, we recommended that investors refrain from sending new money to Scudder Funds. While many firms in similar situations have settled charges with regulators and revealed steps they have taken to improve their corporate cultures, leading us to lift such recommendations, Deutsche has not. This news doesn't affect our position, either, given Deutsche's continuing involvement with the funds.
Hancock CEO Departs
According to a report on Ignites.com, John Hancock's CEO, James Shepherdson, is stepping down after just over a year managing the company. Prior to joining Hancock, Shepherdson was a co-CEO of MetLife Investors Group, and prior to that was a co-CEO of Equitable Distributors, a division of The Equitable Companies. Shepherdson is leaving to pursue an opportunity at Axa Financial (AXA).
On July 18, 2005, Keith Hartstein will take over the CEO mantle. Hartstein has worked for Hancock since 1990, and has most recently held the role of executive vice president of retail sales and marketing. He originally cut his teeth working as a wholesaler for Hancock.
San Diego-based Nicholas Applegate Capital Management expanded its lineup by acquiring the international arm of Duncan-Hurst Capital Management. Managers Vincent Willyard, Joseph Devine, and Barry Kendall will join Nicholas-Applegate from Duncan-Hurst as part of the transaction. Their one foreign mutual fund, Duncan-Hurst International Growth (DHIIX), is small (assets are only $35 million) and has a rather lukewarm record.
Monika Degan is retiring from AIM Blue Chip (ABCAX), which she has managed for eight years. Comanager Kirk Anderson, who joined the fund in May 2003, will take over. We haven't been especially bullish on this fund. Its portfolio isn't meaningfully different from its benchmark, the Russell 1000 Growth Index. Further, the fund's track record hasn't been strong: Compared with other large-growth funds its record is fairly average over the long haul. It has also consistently lagged the S&P 500 Index and moreover, its performance versus the Russell 1000 Growth Index has been mixed. Finally, the offering's hefty 1.47% expense ratio is an ongoing burden.
Kansas City-based American Century Investment Management is introducing a new Disciplined Growth Fund. The fund will invest primarily in the 1,500 largest publicly traded companies in the United States. Manager William Martin--an American Century veteran who also comanages four other funds, including American Century Equity Growth (BEQGX)--will look at a stock's growth potential and earnings sustainability. The main difference between this large-cap fund and similar American Century offerings is that it will primarily be quantitatively driven. The fund's expense ratio is expected to be 1.02%, which is low compared with the typical no-load large-cap growth fund's 1.21%.
American Century will also be launching a Long-Short Equity Fund. Such funds use hedge fund-like strategies, which allow them to buy equities that they think are undervalued and sell short equities that management thinks are overvalued. Kurt Borgwardt, who joined American Century in 1990, will manage the fund. The offering is expected to carry an expense ratio 1.38%, which is on the high end versus the average moderate-allocation fund's 0.89% price tag.
Dieter Bardy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.