Plus, changes at Legg Mason, layoffs at Ariel, and more.
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.
Big-gun bond house PIMCO is hiking fees for the institutional share classes of the venerable (and hulking) PIMCO Total Return PTTRX, as well as PIMCO Low Duration PTLDX, PIMCO Moderate Duration PMDRX, and Analyst Pick PIMCO High Yield Instl PHIYX on Oct. 1, 2008. The administration and supervisory fee for two of the Bill Gross-run offerings, Total Return and Low Duration, will rise by 3 basis points (0.03%) apiece, while the levy on the third, Moderate Duration, will get inched up by 1 basis point (0.01%). The same charge on High Yield will climb by 5 basis points (0.05%). These alterations affect the funds' Institutional, Administrative, and P shares.
Cost increases are never fun, and they're particularly irksome in this case given that PIMCO has had wild success in attracting assets lately. If there's a silver lining for shareholders of the aforementioned funds, it's that their total expense ratios remain quite low relative to the median-level expenses for institutional funds in their respective categories.
The explicitly good news in this announcement is that PIMCO is cutting expenses elsewhere. The same line-item fees on the no-load D share classes of several funds will be dropping, substantially in some cases, on the same date. The deepest cuts of the lot send the costs of the shop's All Asset D PASDX and All Asset All Authority D PAUDX down by 20 basis points (0.20%) each. The administrative and supervisory fees for four funds, Analyst Picks PIMCO Foreign Bond (Unhedged) D PFBDX and PIMCO Foreign Bond (USD-Hedged) D PFODX, and inflation-beating offerings Real Return D PRRDX and RealEstateRealReturn Strategy D PETDX, will shrink by 5 basis points (0.05%). Lastly, the advisory fee on Real Return Asset's institutional shares PRAIX will drop by 5 basis points (0.05%).
We like to see fee reductions and wish more funds had been included in this round of chopping. Also, as the overwhelming majority of PIMCO's mutual fund assets reside in institutional shares, the revenue hit it is taking with these reductions is dwarfed by the increases mentioned above.
Bill Miller Gets Help
An extra pair of hands has joined Bill Miller on the struggling Legg Mason Opportunity LMOPX. Samantha McLemore has been appointed assistant portfolio manager at this mid-cap growth offering, and she'll support Miller with research and other investment duties. She first joined Legg Mason as a research analyst in 2002 but has worked closely with Miller on this fund for much of this time. McLemore's position is similar to Mary Chris Gay's role at Legg Mason Value LMVTX, which she's held since March 2006. Although both help with the process, Miller sets the investment policy.PAGEBREAK
Ariel Cuts Back
For the first time in its 25-year history, Chicago-based asset manager Ariel Investments has made significant staff cuts. The firm laid off nearly 20 employees, reducing its workforce by 20%. All of the firm's senior investment staff remain on board, though, so we don't expect any changes to the firm's investment process.
This recent belt-tightening follows a tough stretch of performance for a number of its funds. The $2 billion in assets Ariel ARGFX has lost 23% in the 12 months ended Aug. 19, and its $1.6 billion sibling Ariel Appreciation CAAPX has lost 14% over this stretch. Both of those showings rank near the bottom of the mid-blend category, and the funds' average annual returns over the past three and five years also look poor on a relative basis. Overall, the firm managed a total of $21 billion in assets in 2004, but that amount has dropped to $9 billion today.