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Longleaf International Cuts Fees, Quits Hedging

Plus, Fidelity boosts target-date funds' overseas, TIPS, and commodity exposure, and more.

Morningstar Analysts, 09/28/2009

Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Advisor Workstation Office Edition.

Longleaf Partners International's LLINX expense ratio will drop dramatically. The fund's advisor, Southeastern Asset Management, announced today that it is cutting its management fee sharply as of Oct. 1.

This is welcome news. The fund's 1.69% is one of the highest of the 123 no-load, actively managed international-stock mutual funds with more than $1 billion in assets.

Southeastern said it has agreed to drop its management fee from 1.50% to 1.20% for the first $2.5 billion in assets. According to Southeastern, this 20% drop in fees means the fund's expense ratio will drop 30 basis points, or hundredths of a percent, to about 1.39% if the asset level stays the same. Expenses will fall further if this $2.2 billion fund grows to more than $2.5 billion in assets, because the management fee will drop from 1.25% to 1.00% for assets over this amount.

Southeastern reduced its fees because the firm has added a number of global and international accounts over the last decade, enabling it to expand its overseas research team while spreading the costs over a larger asset base.

Even after the fee reduction, the fund will still be more expensive than most no-load international large-cap funds of similar size.

In other news, the fund's advisor announced it would no longer routinely hedge the fund's economic exposure to foreign currencies. It is only one of a few foreign-stock funds that had a policy of hedging most currency exposure into the dollar. This hedging can help as the dollar appreciates against other global currencies but can also act as a strong head wind if the dollar depreciates for sustained periods, as it has lately.

Southeastern said some of it clients wanted to manage all of their currency exposure themselves while others prefer no hedging at all. The change will take place gradually and no later than June 30, 2010.

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