Fund Times: Fidelity Loses Up-and-Coming Star
Plus, news on USAA, Scudder, and more.
More Manager Shuffling at Fidelity
Manager William Eigen has left Fidelity. We view his departure as a big loss to the Boston-based firm. Although Eigen did not have an especially long record managing his funds, he drove his largest charge, Fidelity Strategic Income (FSICX), to a top-quartile return relative to its peers over the past three years. Eigen realized this success by deftly maneuvering the portfolio among assets such as high-yield bonds and emerging-markets debt. He also delivered strong results at Fidelity Strategic Dividend & Income (FSDIX) and Fidelity Four-in-One Index (FFNOX).
Derek Young and Christopher Sharpe have been named to replace Eigen as new comanagers. Young joined Fidelity in 1996 and manages similar strategic-income funds in Canada, but he doesn't have a public record running funds in the United States. Sharpe joined Fidelity in 2002 and has comanaged the variable annuity versions of Fidelity's Freedom Fund lineup and the Fidelity Arizona College Savings Plan since April and June 2005, respectively.
One Less Fund for Marsico to Subadvise
Marsico Capital Management, LLC is no longer the subadvisor to USAA First Start Growth (UFSGX). The fund is geared toward young investors, which means it requires added communication and is restricted from some investments. (For example, it cannot buy "sin stocks.") Since manager Tom Marsico started managing it in June 2002, the fund has kept up with most of its large-growth peers, but it has done so with less volatility than its typical rival. A spokesperson from USAA said that the fund needed a greater level of support and the investment restrictions sometimes impeded Marsico's stock-picking style. That said, Marsico signed a new four-year contract with USAA for USAA Growth (USAAX) and Aggressive Growth (USAUX).
In Marsico's place, USAA hired Loomis, Sayles & Company, L.P. to run First Star Growth (UFSGX). USAA said the board was drawn to the investment performance of Loomis Sayles in managing portions of the USAA Growth fund and USAA Growth and Tax Strategy (USBLX) and the reasonable fees Loomis Sayles will accept for these services (0.20% of the daily net assets in the fund). Shareholders should note that although the fund will still invest in large-growth stocks, the two advisors have different management styles. Therefore, in the short run, the fund may experience greater-than-average turnover while new management tweaks the portfolio to fit its tastes. While we do not discount the abilities that the Loomis Sayles crew can bring to the fund, Marsico set a high standard.
The SEC Gets Tough on Utah
The Securities and Exchange Commission announced in a recent press release its first case against a college-savings 529 plan. The Commission filed a cease-and-desist order against the Utah Educational Savings Plan (UESP) for false statements and for omitting errors in its accounting system for investor transactions. Specifically, UESP's former director, Dale Hatch, found that the system failed to properly allocate investor gains and losses to their accounts. However, UESP also found that Hatch was stealing from the unallocated monies. (Specifically, $505,976 of participant unallocated funds went to his own UESP account and another $85,000 went to his personal bank account.) Unfortunately, UESP claimed that the problem was "administrative" and falsely stated that investors had not been harmed.
Morningstar has covered 529 plans for several years now. For more information about various plans and their respective benefits or downfalls, click here.
The National Association of Securities Dealers recently fined Morgan Stanley DW, Inc. $1.5 million and ordered the firm to pay another $4.6 million in restitution to more than 3,500 customers who have brokerage accounts with the firm. The NASD found that Morgan Stanley did not establish an adequate system to inform customers when low trading and/or low asset account levels kicked in, thereby incurring excessive fees in their fee-based accounts.
Deutsche Investment Management, parent of Scudder Mutual Funds, is merging the closed-end fund Scudder New Asia (SAF) into Scudder Emerging Markets (SEKAX). New Asia investors who expected a strategy with a focus on equities in developed Asian countries will join a fund that has a broader emerging-markets mandate and that has only average performance in the sector. However, the management team is the same, with Tara Kenney, Oliver Kratz, and Terrence Gray as comanagers. As we would expect, the merged fund's expense ratios will shrink to 1.55%, which is well below the typical rival in the diversified emerging-markets category.
American Century Investments announced several management changes to its foreign-fund offerings. Trevor Gurwich will no longer manage American Century Global Growth (TWGGX) and will leave it in the hands of comanager Matthew Hudson, who has worked on the fund since 2002. Instead, Gurwich will join Federico Laffan as comanager of American Century International Opportunities (AIOIX), which has suffered since the departure of founding comanager Lynette Schroeder earlier in 2005. Further, Raymond Kong is leaving American Century Emerging Markets (TWMIX) to comanager Michael Donnelly, who has been on the fund since 1997. We expect a new comanager will be added to both the Global Growth and Emerging Markets funds, as American Century generally favors a dual managerial style.
Dieter Bardy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.