Fund Times: Changes at Oakmark
Plus an update on the Seligman saga, Janus lowers fees, and more.
Michael Welsh is retiring from Harris Associates in January 2006 and is stepping down immediately from his comanager positions on Oakmark International (OAKIX) and Oakmark Global (OAKGX). Welsh has no specific job plans at this point in time. While a loss, his departure is not a deathblow to Oakmark International, because it has always been clear that David Herro is the lead manager there. And overall, the international team at Oakmark remains experienced and sizable, and it is still growing.
Welsh's departure from Global is more worrisome because he is the international lead on that fund, and that fund lost Greg Jackson in the fall of 2003. Rob Taylor, who has been with advisor Harris Associates for about a decade, is Welsh's replacement on the Global fund. He's a longtime member of the international team and has run global separate accounts for some time.
The Seligman Saga Continues
The ongoing clash between J. & W. Seligman and regulatory authorities took another turn on Sept. 28, 2005. In a filing, New York Attorney General Eliot Spitzer suggested improper trading at J. & W. Seligman was far more reaching than the firm has reported.
In his press release, the attorney general says he's providing evidence that timing deals were "authorized by top executives" and that although the firm admitted some timing deals, "the full extent of the problem at Seligman has not been disclosed to investors." Attached to the press release is a 31-page exhibit, including internal e-mails and spreadsheets. It's clear from these exhibits that there were extensive internal conversations about market-timing among a number of Seligman employees--including firm president Brian Zino. It's also clear that some of these employees were quite concerned about market-timing in Seligman's funds as far back as 1999, and that it was causing problems for portfolio managers.
This is the second blow Seligman has received since suing Spitzer on Sept. 6, 2005, when the firm charged the attorney general with overstepped his authority in investigating market-timing at the firm. Seligman says Spitzer's expanded investigation into fees took him into territory clearly marked for the Securities and Exchange Commission. On Sept. 21, 2005, however, the firm revealed that it had received a Wells Notice from the SEC, which often signals formal action against a firm.
Seligman's disclosures concerning market-timing arrangements have been low-key and have noted that only one person has left the firm. However, the information released today by Spiter suggests that many were aware of these serious matters. The new information is disturbing and clearly compounds the uncertainty surrounding the firm.
Janus Ties Fees with Results
Janus recently filed plans with the SEC to add performance-based fees to several of its funds, pending shareholder approval. Among those funds that will be affected are Janus Contrarian (JSVAX), Janus Mercury (JAMRX), Janus Mid Cap Value Investor (JMCVX), Janus Research Fund (JARFX), Janus Risk Managed Stock (JRMSX), and Janus Worldwide (JAWWX), as well as the advisor-sold versions of some of those funds.
Performance-based fees fluctuate based on the performance of the fund versus its benchmark. If the fund beats its preselected benchmark, then the fund's fee increases and the advisor gets paid more. If the fund lags its benchmark, then the advisor lowers its management fee. At Morningstar, we're fans of performance fees because they can be a way to align fund advisors' interests with shareholders': The fee reduction helps shareholders avoid the double-whammy of paying high fees while losing ground in an underperforming fund.
Janus, which charges relatively modest fees for its funds compared with industry rivals, plans to begin calculating the fees on Jan. 1, 2006; the fees will eventually be calculated based on rolling three-year periods. The maximum change will be 15 basis points (0.15%) plus or minus the fund's expense ratio. No adjustment will be made unless the fund's performance varies by more than 0.50% in the period.
According to a report in The Wall Street Journal, the decision to propose performance-based fees was driven by the funds' independent trustees, who explored for more than a year the possibility of modifying the fee structure with their outside fee consultant.
Management Shakeup at Growth Giant AIM Investments
Houston-based AIM Investments is implementing several manager changes to its growth lineup in an attempt to improve performance and streamline research. The changes are occurring across the board.
Jay Rushin, who managed AIM Aggressive Growth (AAGFX) since the end of 2000 and AIM Small Company Growth (FIEGX) since October 2004, is departing after a run of poor performance. Lanny Sachnowitz will replace Rushin at Aggressive Growth and continue to get support from comanagers James Birdsall and Kirk Anderson, who is leaving AIM Advantage Health Sciences (IAGHX) and Global Health Care (GGHCX). Juliet Ellis will take over as lead manager at Small Company Growth, with help from comanager Juan Hartsfield. Kenneth Zschappel, former lead manager at Constellation (CSTGX) and comanager of Summit (SMMIX), was more successful than Rushin in improving performance, but that alone was not sufficient to stem the negative asset flows at Constellation over the past few years. The growth sleeve of Summit will continue to be run by lead manager Robert Lloyd, but Sachnowitz, Birdsall, Anderson, and Lloyd will take over at Constellation.
Jim Gipson, Michael Sandler and Bruce Veaco of the successful Clipper funds are leaving the firm. Investment firm Barrow, Hanley, Mewhinney & Strauss, which also manages Vanguard Windsor II (VWNFX), will likely replace the team if the change is approved. For more on our opinion on this story, see our recent article.
Leo Grohowski, chief investment officer at Deutsche Asset Management for the Americas, is leaving the firm. He's being replaced by three people. On the equity side, Kevin Parker, Deutsche's chief executive officer, will handle the hiring/firing/compensation responsibilities, while Russell Read, deputy CIO, will handle investment oversight. For fixed income, Bart Grenier, hired three months ago from Fidelity to be head of specialty fixed income, will serve as CIO.
It seems as though there is a different ETF for every day of the year. First Trust Dow Jones Select MicroCap Index (FDM) was launched today. The new ETF will track the index by the same name, and contains, on average, 289 stocks adjusted according to their float and market capitalization. First Trust joins a growing list of micro-cap ETFs, which we discussed in a recent Fund Spy.
Dieter Bardy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.