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Fund Times

Fund Times: Are High Gas Prices Here to Stay?

Plus, Masters' Select Equity reopens, news on Morgan Stanley, and more.

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The U.S. government came out with its latest energy outlook today. The outlook is put together by the Energy Information Administration, which is part of the U.S. Department of Energy. This year's forecast is interesting in many respects. The first part highlights that last year the EIA forecast oil prices in 2025 of $32.95, but now the EIA's forecast has jumped to $54.08 in 2025--an increase of 64%. The EIA gave the usual reasons for higher forecasts--lack of additional capacity from OPEC and demand increases from the U.S. and Asia/China.

The current projection for natural-gas prices are for substantial drops from current levels of $14 (all-time highs) to $4.46, with only modest increases to last year's forecasts for 2025. If those forecasts are to be believed, it would appear that  ConocoPhillips (COP) overpaid for its recent acquisition of  Burlington Resources (BR) (with a 20% premium).

Still, the entire exercise reminds us not to put too much stock in forecasts, whether they be for oil or for the market.

Masters' Select Equity Reopened Monday
 Masters' Select Equity (MSEFX) has had modest outflows in each of the past six months; the fund's advisor, Litman/Gregory, fearing that the subadvisors will be forced to sell positions to meet redemptions, is reopening the fund. The fund originally closed at $750 million in October 2004, hit $855 million by the end of that year, and now through appreciation is slightly larger. There's no new asset target for closing, but the firm says it will stay in close contact with the subadvisors (particularly Friess Associates and Wells Fargo, who pick small caps) and close again before flows become an issue. Given the firm's history, we're confident that they'll take a conservative approach here.

Morgan Stanley People Moves
Joe McAlinden, Morgan Stanley Investment Management's CIO since 1995, is taking on a smaller role now. McAlinden was the CIO of global equity, fixed income, and alternatives. That job is being split in three, and McAlinden is now the head of global equity only. David Germany (with MSIM since 1987) is taking over the CIO role for fixed income. MSIM is still seeking a permanent replacement for the alternative investments position. Previously, the head of fixed income and alternatives reported to McAlinden, but not anymore. Although the reason for the change is still unclear, it seems that this is part of a bigger push by MSIM into alternative investments.

A New Fund For the Environmentally Conscious
Light Green Advisors, LLC is launching a new fund, the Eco Performance Fund. The fund will try to beat the S&P 500 by investing in companies that exhibit better environmental performance trends and lower environmental risk (such as firms that avoid oil spills, apply financial penalties for noncompliance with environmental laws, and report toxic chemical emissions) than industry peers. The environmental screens use a best-in-class approach, and management plans to keep the fund's sector weights in line with the S&P as much as possible. Jon Naimon, who does not have a public record managing retail mutual funds, will lead the fund. The fund is expected to cost 1.59%, which is more costly than typical large-growth category rivals.

Currency ETF Launched
We first announced in a July Fund Spy that Rydex Investments was releasing a foreign currency ETF, the Rydex Euro Currency Trust, which tracks the price of the European Union's currency versus the dollar. This past Monday, Dec. 12, 2005, it started trading, much earlier than we originally thought it would be up and running. However, as we said before, small investors would do well to stay away from this fund, due to the uncertain nature of currency movements.

Most Investors Still Lack Basic Investing Knowledge
The Securities Investor Protection Corporation released data from a recent survey. Here are several scary stats:

  • Only 21% of investors said that they regularly read prospectuses, review account statements, check the disciplinary backgrounds of their brokers/financial planners, and have a financial plan in place.
  • Only 39% understand how sales fees and commissions work for no-load mutual funds.
  • Only 41% understand how bonds work (such as when interest rates go up, bond prices tend to fall).

Dieter Bardy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.