Fund Times: Market Shock's Impact on Funds
Plus, news on Lord Abbett's lower fees, Franklin to close funds, and more.
Many fund investors felt anxiety this week as broad market indexes declined dramatically Tuesday, Feb. 27, following a sharp decline in Chinese markets, mixed-economic news, and growing concern over declines in the U.S. subprime mortgage market. While a single day of market activity doesn't tell us anything about the condition of the market overall, observing how various categories and specific funds behave under these circumstances can be instructive.
All nine of Morningstar's Style Box categories lost near 3% on Feb. 27, but, as would be expected, some Morningstar fund categories held up better than others. The hardest-hit categories overall, not surprisingly, were historically volatile Latin American Stock, Precious Metals, and Diversified Emerging Markets, with declines of 7.69%, 6.14%, and 5%, respectively. For example, T. Rowe Price Latin America (PRLAX), a fund we like a good deal, nevertheless declined 6.88% that day, and American Century Global Gold (BGEIX) dropped 6.14%. Also, not unexpectedly, every single fixed-income category, with the exception of emerging-markets bond and high-yield bond (two of the more volatile and risk-holding groups, which saw very modest declines), were in positive territory on the day. In fact, since investors will often flee to the safety of U.S. Treasuries during uncertain times and equity market shocks, the Long-Government category actually increased nearly 1.3% Tuesday. Two funds that benefited were T. Rowe Price U.S. Treasury Long-Term (PRULX) and Vanguard Long-Term U.S. Treasury (VUSTX), which gained 1.23% and 1.18%, respectively.
Two categories that are designed to withstand market declines better than others, the Long-Short category and the Bear Market category, performed remarkably well overall, with Long-Short losing only 1.3% and Bear Market actually gaining 4.8%. While a single day is far too short a time from which to generalize, it's heartening to see that funds designed to behave contrary to market movements seemed to hold up well during Tuesday's drop.
Finally, while equity market volatility can be unnerving, it can create opportunities as well. We suggest investors take a look at our Fund Analyst Picks list for funds that should do well in the long term through a variety of market conditions.
Lord Abbett Reduces Muni Funds' Fees
In a welcome development, Lord Abbett & Co. has announced that it will reduce the 12b-1 fees on its 16 municipal funds. The fees, which currently stand at 0.35% for the A share class and 1.00% for the C share class, will decline to 0.20% and 0.80%, respectively, April 1. We're glad to see fees come down here, as this should make funds such as Lord Abbett National Tax-Free Income (LANSX) more competitive and can give added flexibility to management, allowing them to take fewer risks to generate the same returns.
Franklin Templeton to Close Two Small-Cap International Funds
Franklin Advisors has announced that effective April 30, it will close the $476 million Templeton Foreign Smaller Companies (FINEX) and the $1.5 billion Templeton Global Smaller Companies (TEMGX). Both offerings traffic in small-cap names that can be less liquid, so we're glad to see the advisor take asset growth seriously here.
ING Changes Managers at High Yield
After several years of underperformance, ING Investment Management has decided to change the management team at ING High Yield Bond (IHYAX). Current fund managers Greg Jacobs and Kurt Kringelis, who have been with the offering since the beginning of 2001, will be replaced by Randall Parrish as of March 1. Parrish served as a senior analyst on the ING High Yield Team for six years, focusing on the media and retail/consumer sectors, and has previous experience working in leveraged finance at SunTrust Bank. We'll see whether he can turn performance around here, but ING could give him a hand by reducing the fund's above-category-average 1.18% expense ratio.
Robeco to Reopen Small-Value Offering
Robeco Advisors recently announced the reopening of Robeco Boston Partners Small Cap Value Fund II to new investors. Both the Institutional (BPSIX) and the Investor shares (BPSCX) will reopen March 15, 2007. When the fund closed to new investors Aug. 29, 2003, we viewed it as a good move, as the firm was then managing $650 million in the style. (Keeping a nimble asset base is essential when investing in small-cap stocks, as large purchases and sales can adversely affect their prices.) In recent years, though, the fund lost assets as some investors exited the fund. Robeco demonstrated its shareholder-friendliness by closing the fund before. Even so, we're monitoring the reopening closely to make sure the firm doesn't allow assets under management to grow to an unwieldy size.
GAMCO Offers to Settle with SEC
Gamco Investors (GBL), the publicly traded investment advisor of the GAMCO and Gabelli lineup of mutual funds, has added $3 million to its reserve fund, for a total of $14.9 million, which would be available to pay the Securities and Exchange Commission to settle a dispute over alleged improper trading of fund shares. We'll wait for the specifics before commenting.
Lawrence Jones does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.