Masters' Select Fires Legg Mason, Hires Oakmark

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Masters' Select has shaken up the manager roster of Masters' Select Equity MSEFX and Masters' Select Value MSVFX. The fund shop has replaced Bill Miller of Legg Mason Value LMVTX, who served as one of the four subadvisors for eight years, with Clyde McGregor of Harris Associates, the investment advisor of Oakmark Funds. McGregor will oversee approximately 20% of the assets at both large-blend offerings. On Masters' Select Value, he joins colleague Bill Nygren, who also runs a sleeve of the portfolio, along with Mason Hawkins of Longleaf Partners, and Michael Embler and Peter Langerman of Franklin Mutual Advisers. On Masters' Select Equity, he joins Mason Hawkins, Christopher Davis and Kenneth Feinberg of Davis Select Advisers, Bill D'Alonzo of Friess Associates, and Frank Sands and Michael Sramek of Sands Capital Management.

Both funds have struggled immensely since the credit crunch first reared its ugly head in mid-2007, and Bill Miller's stock-picking holds part of the blame. At Legg Mason Value, Miller made a slew of wrong bets on mortgage lenders and homebuilders and missed the energy rally, tarnishing his five- and 10-year record. Miller wasn't alone in his suffering, though. Bill Nygren also bet incorrectly on suffering financial and consumer companies at Oakmark Select OAKLX. Both managers' very long-term records remain fine.

Investors of Masters' Select Equity and Masters' Select Value should stay the course, as both offerings are still backed by some of the most talented managers around.

PIMCO Urges More Government Action to Calm the Market
In his latest Investment Outlook, PIMCO's co-CIO Bill Gross argues that cyclical interest-rate cuts, liquidity provisions, and the purchase of subprime-mortgage debt by the Treasury may not be enough to stabilize the market, saying "the Federal Reserve must now act as a clearing house, guaranteeing that institutional transactions [will] clear." Further, he argues that "they must also take another bold step: outright purchases of commercial paper. They should also cut interest rates to 1%, because we are experiencing asset deflation, and the threat of headline inflation is long past." The Fed decided to cut its overnight lending rate from 2.0% to 1.5% yesterday, and other countries' central banks followed suit.

John Hancock's Shareholder-Unfriendly Move
John Hancock is seeking shareholder approval to bring Robeco Boston Partners Large Cap Value BPLAX under its mutual fund umbrella and rebranding it as John Hancock Disciplined Value. We like that fund's management team and its value-oriented approach, which has led to a smooth ride over time, but we disagree with John Hancock's proposal to raise the fund's expense ratio from 0.75% to 1.00% and change it from a no-load offering to one with a 5% front-end sales charge. Robeco Boston Partners and John Hancock have not yet disclosed the fee impact on existing shareholders. A special shareholders meeting will be held Dec. 17. If approved, the reorganization will take place on or around Dec. 19.

New Fund Joins the Long-Short Fray
Absolute Investment Advisers is launching a long-short offering. Absolute Opportunities seeks to provide higher risk-adjusted returns than traditional equity indexes, such as the S&P 500. The fund will be subadvised by GMB Capital Management, MetWest Asset Management, Green Eagle Capital, Kingstown Capital Management, and Madden Asset Management. The teams will be allowed to invest in domestic and foreign stocks, debt (without limitations on credit quality or maturity), exchange-traded funds, options, futures, and swaps. The fund comes with a 2.95% expense ratio, making it too expensive to recommend.

Reopenings
Fidelity Advisor Mid Cap FMCAX will reopen its doors to new investors Oct. 13. This concentrated mid-growth fund previously closed in July 2004 when total assets in the strategy climbed above $7 billion. Due to poor absolute and relative returns in the turbulent year to date, the fund has experienced steady redemptions. This fund isn't bad, given its price-conscious approach that keeps its portfolio out of the most speculative names, but it has failed to beat its preferred benchmark, the S&P MidCap 400 Index, in recent years. So, we can't give the fund a wholehearted endorsement.

Calamos Convertible CCVIX is now open to new investors. The funds first closed in April 2003 when assets under management swelled to more than $1.3 billion and managers Nick and John Calamos had trouble finding attractively priced investment opportunities in the convertible market. The fund now has $564 million in assets, and recent market volatility has presented buying opportunities for the team. We think that investors should take a look at this fund, because it is backed by Calamos' robust analytical process and a seasoned management team with a proven record.