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Three Stories from 2009 that Will Still Matter in 2010

Gundlach, Berkowitz, and the Supreme Court will still be on investors' radar in the new year.

Morningstar Analysts, 01/04/2010

The last year was tumultuous for fund investors.

The March low in equity prices and the subsequent sharp rebound tested even the most seasoned investors and their strategies. Meanwhile, fixed-income investors saw the 10-year Treasury note yield soar from less than 2.5% at the beginning of the year to more than 3.75% by its end, damping the returns off all but the shortest-duration funds.

Against this backdrop, the fund industry didn't just survive--it thrived. Sure there were widespread layoffs, an Oppenheimer bond fund disappointment, and even money market concerns. And yes, there was other news including Jeremy Grantham stepping down as chairman from GMO, Bob Rodriguez taking a break from FPA, the retirement of Vanguard chairman and former CEO John Brennan, and the passing of Chris Browne.

But there were no major industrywide scandals involving Madoff-like fraud or theft that many high-net-worth investors experienced in other arenas. And while investors did pull out of equities and put record amounts of money into bonds and money market funds, mutual fund industry assets, and by implication investor confidence, as a whole were not impaired. In fact, 2009 saw the rise of the largest fund in history--PIMCO Total Return PTTRX at a whopping $200-plus billion in assets (yes, billion).

Even though 2009 is behind us, there a few stories we will still be talking about in 2010.

1. An easy one is Jeff Gundlach, Morningstar's nominee for Fixed-Income Manager of the Year and Decade. He had a less-than-amicable split with TCW and the row hasn't fully died down. When will his new firm, DoubleLine, start managing mutual fund assets? Will the TCW Total Return Bond TGLMX fund board even consider DoubleLine to manage part of the fund's assets? And the list goes on.PAGEBREAK

2. Speaking of bonds, there are some new entrants in the arena that may pose a challenge to this usually highly diversified group. Notably, Fairholme is launching a focused bond fund in January. This comes on the heels of Third Avenue's launch of its Focused Credit Fund TFCVX in August.

A focused bond fund is something new for the asset class because most funds hold hundreds of bond issues. But manager Bruce Berkowitz's strong track record at Fairholme FAIRX bodes well for the fledgling fund. Oh, and he happens to also be a nominee for Domestic-Stock Manager of the Year and Decade.

3. Finally, the Supreme Court will decide the Harris case in the spring, the most important mutual fund case in decades, which could potentially put pressure on mutual fund fees and fund industry profit margins. Because this case may go back down to the district court for trial after the Supreme Court makes its decision, this could drag out (unfortunately). And while we're on legal topics, we probably haven't seen the last hearing on target-date funds or money market reform. The legislators, regulators, and the other "-ors" will have their hands full.

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