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Fund Times

Fund Times: TIAA-CREF Gets What It Wants

Plus, news on Fidelity's new strategy, new Vanguard share classes, and more.

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TIAA-CREF announced it succeeded in its second attempt to get shareholder approval for big hikes in management fees at many of its funds, including: TIAA-CREF International Equity (TIIEX), TIAA-CREF Large-Cap Value (TCLCX), TIAA-CREF Small-Cap Equity (TCSEX), TIAA-CREF Real Estate Securities (TIREX), TIAA-CREF Social Choice Equity (TISCX), TIAA-CREF Bond (TIBDX), and TIAA-CREF Inflation-Linked Bond (TIILX) and TIAA-CREF's money market funds. When first vote was held in July shareholders rejected nearly all of the fee hikes.

TIAA-CREF CEO Herb Allison released a statement saying, "The board’s action--to give shareholders the facts and let them decide--embodies the transparency and fairness that distinguishes our organization." We wonder whether Allision therefore means shareholders didn't have all the facts in the first time around.

Morningstar fund analyst Christopher Davis says that "this outcome will likely result in a downgrade of TIAA-CREF's Stewardship Grade board score given the board's acquiescence to management. It isn't just the fee hikes themselves, but the complete disregard for shareholder wishes that is particularly galling."

The fee hike takes effect Feb. 1, 2006.

Vanguard Offers Lower-Cost Funds to Institutions
Vanguard announced the release of institutional share classes of  Vanguard Intermediate-Term Bond Index (VBIIX) and  Vanguard Long-Term Bond Index  (VBLTX). The new institutional share expense ratios are expected to clock in at 0.08% and 0.09%, respectively. The minimum investment for the institutional shares is $25 million.

Fidelity’s 2006 Strategy
Fund giant Fidelity wants to start playing small. Remarks from Steve Jonas, who was named executive director of Fidelity Management & Research Company on May 2, 2005, indicate that the company is seeking to reorganize its mutual fund divisions into small, integrated teams. Fund managers, research analysts, and traders will start working more closely together. Part of the effort will include doubling the number of research analysts from 90 to 180.

It’s good that Jonas recognizes the performance problems and other issues that have plagued Fidelity's funds in recent years, but it remains to be seen if simply adding more research (which was traditionally Fidelity’s strong suit) will solve all of the firm's woes.

GM Still Has a Few Fans
 General Motors (GM) has been in the news a lot lately as management seeks to return the company to profitability and correct its sliding market share. The ride was very bumpy for this automaker last year. In 2005, General Motors' stock dropped nearly $21 per share (or 48%). Only Coach Industries Group (CIGI)--which provides financial services and produces specialty vehicles for commercial fleets--did worse, losing 67% during 2005.

A price drop of this magnitude will test the resolve of even the most determined stock-picker, and many have thrown in the towel. The largest sellers of the stock as of the most recent portfolio in Morningstar's database include  USAA Income Stock (USISX),  Ameristock (AMSTX), TA IDEX American Century Large Company Value (IAIAX), and  Wells Fargo Advantage Dividend Income (SDVIX).

On the flip side, some funds still have big bets on the stock. The most prominent fund in the top four is  Longleaf Partners (LLPFX), which has produced top-decile ranked five- and 10-year trailing results. The remaining three are  Payden Growth & Income (PDOGX), Hennessy Total Return (HDOGX), and Hennessy Balanced (HBFBX). These three funds' trailing three- and five-year returns rank in their respective categories' bottom quintiles.

Dieter Bardy has a position in the following securities mentioned above: VBIIX. Find out about Morningstar’s editorial policies.