• / Free eNewsletters & Magazine
  • / My Account
Home>Research & Insights>Fund Times>A Hidden Gem Gets Cheaper

Related Content

  1. Videos
  2. Articles
  1. Top Investment Ideas for Retirement

    Retirement Readiness Bootcamp Part 5: Morningstar strategists share their top fund, ETF, and dividend stock picks to fill your retirement portfolio.

  2. Cream of the Crop: Our Favorite Funds in All Flavors

    Morningstar's Russ Kinnel, Sarah Bush, and Christine Benz highlight their top fund picks for domestic and foreign equity, core bond, inflation-protected securities, and much more.

  3. Jacobson's Picks for Core Bond Exposure

    Morningstar's director of fixed-income research offers his tips for selecting a solid core bond fund along with some of his favorite choices.

  4. Top Funds for Tax-Efficient Bucket Retirement Portfolios

    Tax-managed, index, and municipal-bond funds from Fidelity and Vanguard are among the best options for investors looking to minimize the tax drag on their portfolios, says Morningstar's Christine Benz.

A Hidden Gem Gets Cheaper

Plus, Fairholme's Berkowitz increases AIG stake, and more.

Morningstar Analysts, 09/27/2010

A solid large-blend fund has just gotten cheaper. BBH announced a reduction in the net expense ratio for BBH Core Select BBTEX from 1.19% to 1%. The firm said it is passing on some of the fund's economies of scale to shareholders. The fund's assets have increased from less than $100 million in 2006 to more than $330 million today thanks to strong inflows and performance. (We profiled the fund in April.)

Rick Witmer, Tim Hartch, and Michael Keller manage this concentrated (it regularly holds around 30 stocks), low-turnover fund in a deliberate manner. They look for companies with great balance sheets, high returns on invested capital, and strong free cash flows whose shares are trading at 25% or more below their estimate of the stocks' intrinsic value. Since Witmer and Hartch took over in October 2005 (Keller became comanager in mid-2008) through Sept. 21, the fund has gained 5.1% annualized, while the S&P 500 Index and the typical peer have gained 0.6% and 0.3%, respectively.

Fairholme's Berkowitz Ups AIG Stake
Fairholme Capital, advisor to Fairholme Fund FAIRX, continues to increase its American International Group AIG stake. It now owns almost 33 million shares of the insurer, or 24.4% of its common stock, according to filings made this month with the Securities and Exchange Commission.

Fairholme manager Bruce Berkowitz began building a stake in insurer AIG earlier this year as part of a larger move into financial companies. In March, Fairholme Capital owned more than 13 million of AIG's shares, more than 20% of some tranches of the firm's convertible debt, and other AIG bonds. In April, Fairholme Capital indicated in a filing that it was AIG's largest shareholder after the U.S. government. As of the May 31 portfolio, the fund owned more than 28 million AIG shares, 6.8% of the fund's assets.

Fairholme is the top-performing large-blend fund over three-, five-, and 10-year periods, and it's up 7.7% for the year, while the S&P 500 Index is up 3.2% and the typical rival's gain is 2.3%.

Vanguard Launches Funds and ETFs Tracking Russell Indexes
Two weeks after it introduced a batch of new S&P domestic-equity index funds and exchange-traded funds, Vanguard rolled out seven passive stock funds and ETFs based on Russell benchmarks. The firm first filed for both the S&P and Russell index funds in June. The new funds will track the Russell 3000 as well as the value, growth, and blend portions of the large-cap Russell 1000 Index and small-cap focused Russell 2000. Institutional fund shares will charge 0.08% in fees, while the ETF shares will range from 0.12% to 0.20%. The minimum investment for the institutional shares is $5 million.

Vanguard also plans to launch its first municipal-bond index funds and ETFs as well as a new global real estate fund and ETF.

Dreman Steps Down as Co-CIO of Dreman Value Management
Longtime value investor David Dreman is stepping down as co-chief investment officer of Dreman Value Management, the firm he started more than three decades ago. E. Clifton Hoover, who has served as co-chief investment officer with Dreman since 2006, will become the sole CIO on Oct. 31. Hoover is also co-director of research, portfolio manager, and managing director. The transition has been planned for several years.

Dreman will remain chairman of the firm and will also continue as portfolio manager of Dreman High Opportunity DRLRX and Dreman Market Overreaction DRQAX. He'll also remain as head of Dreman's quantitative research process and investment committee member.PAGEBREAK

Fidelity Says Goodbye to Two Small Advisor Funds
Fidelity will merge away two small Advisor funds. The fund family has proposed a reorganization of Fidelity Advisor Fifty FFYTX into Fidelity Advisor New Insights FNIAX. Both funds measure themselves against the S&P 500 Index, but Advisor Fifty's $49.2 million in assets is a tiny drop in Advisor New Insights' $12.3 billion bucket. Advisor Fifty also owns just 50 stocks, while New Insights owns more than 400 stocks. Will Danoff, Morningstar's 2007 Domestic-Equity Fund Manager of the Year, will continue to run the fund. Since Danoff took over in August 2003, the fund's 9.2% annualized gain has more than doubled the category's and index's returns.

The $33.7 million Fidelity Advisor Japan FAJTX will merge with the $893 million Fidelity Japan FJPNX. Robert Rowland has run both funds since 2007 and will remain if shareholders approve the merger. Both funds are in the red since Rowland took over but have held up better than their peers and benchmark. Fidelity Japan has lost 9.5% annualized from May 1, 2007, through Sept. 21, 2010, which is poor in absolute terms but better than the typical Japan stock fund's 12.0% tumble and the index's 17.0% loss over that period.

Fidelity Select Home Finance's FSVLX mandate and name will change pending approval. The fund's board has proposed letting the fund own stocks in faster-growing areas like auto loans, student loans, and credit cards in addition to the slower-growing mortgages and related services. Its new name would be Fidelity Select Consumer Finance.

Tom Gayner, an independent director on the Davis New York Venture NYVTX fund board since 2004, is poised to become the board's chair, pending shareholder approval. Gayner is the executive vice president and chief investment officer of Buffett-esque insurance company Markel Corp. MKL. The fund owns shares in Markel.

Iowa will lower the fee of its College Savings Iowa 529 to 0.34% from 0.50% on Oct. 15, 2010. Iowa's direct-sold plan uses Vanguard funds, offering four age-based tracks and nine static investments. In the past month, several other Vanguard-managed 529 plans have cut fees. Colorado's CollegeInvest waived its 0.10% administrative fee for one year on the Direct Portfolio College Savings Plan, lowering fees to 0.42% from 0.52%. Meanwhile, New York's 529 College Savings Program lowered its fees to 0.25% from 0.49% on all of its investment options.

HSBC Investor Mid Cap HMIAX will liquidate by Nov. 19, 2010.

Bryan Petermann is off the portfolio management team of SunAmerica Strategic Bond SDIAX.

Los Angeles Capital Management and Equity Research is no longer the subadvisor to Forward SMIDPlus ACSIX (formerly the Forward Small to Mid Cap Fund). The fund is now managed by Nathan Rowader, David Ruff, Jim O'Donnell, and Paul Herbert of Forward Management. Rowader and Ruff have primary responsibility for the day-to-day management of the fund.

Get fund news delivered to your e-mail inbox every Monday. Sign up for our free Fund Times e-newsletter

©2017 Morningstar Advisor. All right reserved.