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NASCAR-Themed Fund Runs Out of Fuel

Plus, American Beacon introduces a new fund, Fidelity cuts B shares, and more.

Morningstar Analysts, 06/14/2010

After nearly 12 years of "investing in the companies that support America's #1 spectator sport," the board of StockCar Stocks Index SCARX has decided to liquidate the fund by Aug. 1, 2010. Evidently, the fund's strategy of investing in companies that support NASCAR's Sprint Cup Series, while charging a hefty 1.50% fee failed to attract shareholders. Since its inception, the fund's net assets did not reach much above $6 million. From a performance standpoint, however, the fund's 10-year annualized return of 3.21% topped 73% of its peers in the large-value category.

American Beacon Launches New "Liquidity Premium" Funds
American Beacon Advisors launched two new mutual funds that seek to capture excess returns by investing in illiquid securities.

American Beacon Zebra Large Cap Equity AZLAX and Small Cap Equity AZSAX use a proprietary strategy to capture equity returns based on the liquidity premium. In theory, shareholders should be compensated for owning more illiquid securities in the same way they should be compensated for owning riskier securities. Zebra Capital, the funds' subadvisor, believes this premium isn't captured by more traditional investment strategies.

Founded in 2001, Zebra Capital's co-founders are Roger Ibbotson, Ph.D., chairman and chief investment officer, and Zhiwu Chen, director of research. They are both professors of finance at Yale University and will both be comanagers on the fund.

Ibbotson sold his consulting company, Ibbotson Associates, to Morningstar in 2006. Ibbotson currently acts in a management advisory role for Morningstar.

Zebra selects securities by analyzing their liquidity metrics (such as turnover and trading volume) relative to their fundamentals. It uses these observable, relative liquidity measures to construct a portfolio that invests more heavily in stocks with strong fundamentals that are traded less often than stocks with comparable traits.

The funds' strategy is designed to generate higher returns over time, driven by three factors: Less liquid stocks generally trade at a discount; individual stocks move in and out of favor, reverting toward mean liquidity; and a potential benefit from general worldwide increases in the liquidity of markets.

Neither fund will charge a redemption fee even though large and sudden outflows of shareholder capital could have a dramatic effect given each fund's makeup of relatively illiquid securities.

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