Fund Times: TIAA-CREF Proposes Fee Hikes
Plus, news on Vanguard, Putnam, Oppenheimer, and more.
TIAA-CREF plans to dramatically hike its management fees, subject to shareholder approval. If the proposed plans are accepted, the firm's management fees will rise to 45 to 50 basis points (0.45% to 0.50%) for actively managed funds. That's quite a jump, considering that 53 of the firm's 63 funds currently charge 10 basis points or less. TIAA-CREF says that the new fees will pay for the costs of adding 20 new analysts over the next couple years. The firm also says that the extra fees will be used for improved Web site communication and increased regulatory costs.
But here's the twist: There's an added margin built in to allow TIAA-CREF to reinvest in the business and "grow assets." The board allegedly isn't raising fees to target a specific profit margin, but it does want to ensure that the advisor isn't losing money.
Further, TIAA-CREF wants to slap 12b-1 fees on the retail share class of its Institutional funds as well. On a quarterly and annual basis, TIAA-CREF will present to the funds' board of trustees each fund's marketing and customer acquisition and retention costs. TIAA-CREF can ask for up to 25 basis points in fees. But the firm says it has no plans to join an NTF platform.
Finally, under a separate vote following the above approval, TIAA-CREF will merge its older, non-Institutional funds, such as TIAA-CREF Growth Equity (TIGEX), TIAA-CREF Growth & Income (TIGIX), and TIAA-CREF Bond Plus (TIPBX), into its Institutional lineup. That means that if you own Growth & Income today, you'll eventually be a shareholder of the retail share class of TIAA-CREF Institutional Growth & Income (TIGRX), the class with the highest expenses. And that's not a good thing.
Vanguard Gets Tough with Traders
Vanguard is clamping down harder on frequent traders. Per a statement released on the firm's Web site, effective Sept. 30, 2005, shareholders will not be allowed to buy a fund, via phone or online, that they've sold within the previous 60 calendar days. The new restriction won't affect money market funds, ultrashort-term bond funds, or ETFs.
We applaud this move by Vanguard. It should help prevent short-term traders from using mutual funds as their trading vehicles. Further, it demonstrates how Vanguard is on the same side as fund investors. Instead of allowing a small group of traders to exploit market inefficiencies, the firm is protecting the interests of the majority of its long-term shareholders.
Respected Putnam Manager Departs
Paul Marrkand, the fundamental manager behind the turnaround at Putnam Vista (PVISX), is leaving the firm for an unnamed competitor. He'll be replaced by Brian DeChristopher, who is being promoted from analyst. Kevin Divney, the quantitative manager on the fund, will remain as comanager on the fund.
Marrkand's departure is a significant blow to the firm. Putnam had notable performance troubles following the bursting of the technology-led bubble in the late 1990s. Since then, the firm has experienced a lot of personnel turnover, including many firings, in an effort to improve performance. Marrkand was one of the managers tapped to fix performance woes among Putnam's growth funds. After some success with Putnam's core U.S. funds, Marrkand moved on to Vista with Divney. Since the duo took over there, relative returns have picked up nicely.
New Oppenheimer Fund
The dividend-fund bandwagon rolls on with Oppenheimer's launching of a new offering, Oppenheimer Dividend Growth. This fund will invest in companies that management thinks are of high quality, currently pay dividends, or are expected to begin paying dividends in the future. Neil McCarthy, who joined Oppenheimer in 2003, will manage the fund. Previously, he managed separate accounts for OFI Institutional Asset Management, with lukewarm success. Helping McCarthy comanage will be Joseph R. Higgins, who worked with McCarthy at OFI. The fund is expected to have an annual expense ratio of 1.25%, which is right in line with other front-load large value rivals.
Since the new, lower dividend-tax rate came into effect in 2003, 17 other funds that play to investors' desire for dividend-paying stocks have come into being, according to Morningstar data. These funds have certainly caught on, gathering $3.2 billion in assets through June 30, 2005.
Firsthand Capital Management is expanding from its traditional technology-stock focus to manage two new funds from Cincinnati-based Black Pearl Funds. Black Pearl OTC Focus and Black Pearl Long-Short will both utilize quantitative strategies seeking long-term capital appreciation with an emphasis on small-cap stocks. The Long-Short fund, however, will supplement that strategy with short-selling tactics. The funds' managers have yet to be named. Also, the SEC recently examined the use of soft dollars at Firsthand, as a result of allegations made in a wrongful termination lawsuit.
MFS is the latest entrant in the target-retirement field with four new funds, MFS Lifetime 2010, MFS Lifetime 2020, MFS Lifetime 2030, and MFS Lifetime 2040. The four funds will invest in 16 different actively managed MFS mutual funds. It's notable that the two longer-dated options do not currently have any fixed-income exposure, unlike the target-retirement funds offered by T. Rowe Price, Vanguard, and Fidelity. Finally, while there won't be any extra management fees above the underlying fund costs--similar to other big shops--there will be an annual 12b-1 levy of 0.35% on the funds' A shares, which is 10 basis points more than peers Putnam and MassMutual charge in distribution fees on the front-load shares of their similar funds. These funds are designed to be held throughout an investor's lifetime.
Dieter Bardy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.