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Fund Times

Fund Times: PIMCO Says It Can Adapt to Rule

Plus, Janus ownership information, news on Bramwell, and more.

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A week after the IRS ruled that mutual funds can't use commodity swaps, PIMCO says it will be able to maintain its strategy using other securities.

Portfolio manager John Brynjolfsson says  PIMCO Commodity Real Return Plus (PCRDX) can maintain its dual exposure to commodity prices and inflation-protected securities by using structured notes instead of swaps. He said the impact on returns of the ruling would be modest.

In addition, he said would gradually transition the portfolio in the coming months so that it will be well-positioned when the IRS rule goes into effect on June 30, 2006.

The news is encouraging as early indications were that the ruling would force PIMCO to scale back the fund's exposure to inflation-protected securities.

PIMCO also changed its prospectus sticker on December 21 to reflect its more optimistic take: "PIMCO believes it can continue to operate the fund consistent with both the Revenue Ruling and its current investment policies using (i) alternative investments, such as commodity-linked notes, and/or (ii) alternative structures within the Fund. PIMCO believes that these changes can be made prior to June 30, 2006. The use of alternative investments and structures could negatively affect the fund’s (and, to the extent they invest in the fund, the All Asset and All Asset All Authority Fund’s) investment return."

Janus Walks the Walk
Janus reported fairly strong manager ownership across their funds as of the most recent Statement of Additional Information (SAI) dated Oct. 31, 2005. For example, managers in four of their top 10 largest funds, including  Janus Fund (JANSX),  Janus Twenty (JAVLX),  Janus Contrarian (JSVAX), and  Janus Overseas (JAOSX), each have more than $1 million invested in the funds that they oversee. On the flip side, it's disappointing to see that some managers, such as David Corkins of  Janus Mercury (JAMRX), and Jason Yee of  Janus Global Opportunities (JGVAX) and  Janus Worldwide (JAWWX), only invest between $100,000 and $500,000 in each fund.

Bramwell Sells
Elizabeth Bramwell is selling her firm, Bramwell Capital Management, to Sentinel Asset Management (an affiliate of the National Life Group) in March 2006. We're not worried by the move as she will continue to manage her two funds,  Bramwell Growth (BRGRX) and Bramwell Focus (BRFOX), but they will be renamed Sentinel Capital Growth and Sentinel Growth Leaders. Once the change is made, expenses will be lower, although the funds will then be broker-sold and will charge a load for new shareholders.

Sentinel's CEO Christian Thwaites, has been trying to increase the firm's assets under management. Adding Bramwell will contribute more than $260 million in assets to Sentinel and its subsidiaries' existing $17 billion in assets.

SEC Sends Managers of Alger Fund a Wells Notice
The managers of the Alger funds have received a Wells Notice from the SEC following investigations by the SEC and the New York State Attorney General of market-timing and late-trading practices. According to a Dow Jones newswire, the funds' manager, current and former members of its management, as well as Fred Alger & Co., received Wells Notices, which might indicate that the SEC will bring civil enforcement action for violations of federal securities laws.

In Time for the Holidays: New ETFs Aplenty
In this ETF-hungry investment atmosphere, introducing new indexes usually means introducing new ETFs to track them. Rydex Investments is launching six ETFs based on the recently designed S&P "Pure Style" value and growth subsets of the S&P 500, S&P MidCap 400, and the S&P SmallCap 600. Unlike the "Value" and "Growth" indexes, which allow the market capitalization of certain "core" companies to be divided between the indexes, the "Pure Style" indexes will contain only companies that clearly fall within the value or growth. As a result, these ETFs will be less diversified and more volatile.

In other ETF news, Deutsche Bank is launching the first broad-based commodity ETF. The Deutsche Bank Commodity Index will based on Deutsche Bank's "Liquid Commodity Index": a production-weighted basket of six commodities, including aluminum, gold, wheat, corn, heating oil, and sweet light crude. Unlike other ETFs, this fund will be able to utilize commodity futures in conjunction with fixed-income securities. Even with the potential annual prospect of 2.50% of interest income, expenses of 1.45% of assets make this conceptually novel ETF very pricey.

New Managers Fund
Managers Investment Group is launching a new go-anywhere global offering subadvised by First Quadrant. The Managers AMG FQ Global Alternatives Fund will invest in the global equity, fixed-income, and currency markets and will utilize derivatives and long/short positions in order to capitalize on relative performance gaps between asset classes. The fund's risky strategy of performance chasing, combined with an almost laughably steep 2.37% expense ratio, makes this an unattractive offering.

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