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Fund Times

Fund Times: Clipper Board Weighs Options

Plus news on Fidelity manager changes, The Preferred Group, and more.

Clipper Funds announced Thursday it is in the market for a manager. The funds' board said it has selected Wilshire Associates Incorporated to evaluate the proposed new subadvisor, Barrow, Hanley, Mewhinney & Strauss, Inc. (BHMS). As we reported on Sept. 30, 2005, three Clipper managers will depart by the end of the year, thereby necessitating a new investment advisor. We are happy to see that the board is considering other options, instead of simply accepting management's suggestions. Although we respect the team at BHMS, it implements and executes its strategy in a meaningfully different way than the former advisor, Pacific Financial Research, and the two should not be considered equal.

Time for the Monthly Manager Change at Fidelity
After taking over in October 2004, Harlan Carere has been taken off  Fidelity Select Biotechnology (FBIOX), with Rajiv Kaul assuming management of the fund effective Oct. 12. The move reflects Fidelity's efforts to lighten analysts' coverage lists. Carere will continue managing  Fidelity Select Health Care (FSPHX) and Fidelity Select Pharmaceuticals (FPHAX).

Recently, Kaul has been following biotechnology stocks since June 2005. However, before that he managed the Select Biotechnology fund from 1998 to 2000 and later  Fidelity Select Developing Communications (FSDCX) from 2000 to 2001. His most recent role was manager of  Fidelity Aggressive Growth (FDEGX) from 2002 to 2005. His recent removal from that fund may be an indication that he's decided to focus on the biotechnology sector on a more or less permanent basis under the new Fidelity research model.

Former Fidelity and Ex-Harvard Managers Start Advisory Firm
Per a Dow Jones Newswire, David Scudder and Karen Firestone are starting their own firm, Aureus Asset Management LLC. Firestone left her former funds,  Fidelity Large Cap Stock (FLCSX) and its clone,  Fidelity Destiny I (FDTOX), at the end of April 2005. Although her record was decidedly mixed running those funds, her extensive experience and other structural backings of the funds had given us comfort with those offerings. Scudder is a former vice president of Trusts at Harvard Management Co.

Investors shouldn't get too excited about the new business just yet--the firm will serve only a small slice of the market and is slated to have a $10 million minimum initial investment in the portfolios. Like some conventional mutual funds, the portfolios will invest in assets across at least six asset classes, most of which won't be available to clients until 2006.

Caterpillar Inches Away from Advisor Business
 Caterpillar Inc. (CAT), the parent company of Caterpillar Investment Management Ltd., announced that it's exiting the investment management business within a year. This will affect The Preferred Group of Mutual Funds in a big way, as Caterpillar's retirement plans own between 75% and 95% of the outstanding shares of all but three of the Preferred funds (it owns 25%-50% of those three). If they pull their money--and they say they are going to review all their investment options--some of these offerings could be forced into liquidation or see their fees rise precipitously. While Caterpillar has agreed to cap fees for the time being, going forward there is no long-term guarantee. Investors should pay close attention to new developments as they occur.

Fund Guru Passes On
 Sequoia Fund (SEQUX) manager William J. Ruane, who died last week, was remembered in a Washington Post obituary. His 35-year tenure managing the Sequoia Fund earned investors top decile returns despite the near-term difficulty the fund has faced in recent years. For more information on this stellar manager, read the Washington Post article here.