Plus, changes at Morgan Keegan, new Vanguard funds, and more.
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Sequoia Fund SEQUX, run by investment advisor Ruane, Cunniff & Goldfarb, will reopen its doors to new investors on May 1, 2008. This grand old fund has been closed since Dec. 23, 1982. The New York-based fund shop says that its shareholders have aged since that time and consequently, attrition has become an issue. Indeed, the fund has generated an annualized 6.1% gain over the last decade--beating both its large-blend category and the S&P 500 Index by a wide margin--but its assets under management have fallen from $5.0 billion as of year-end 1998 to $3.8 billion through March 2008. Like many other great value offerings that have reopened recently--including Dodge & Cox Stock DODGX and Longleaf Fund LLPFX--this fund's managers also want to take advantage of the recent market volatility to invest in new ideas or add to existing positions.
We think this is a great opportunity for investors to gain access to an extremely capable management team. Managers Bob Goldfarb and David Poppe are Buffett-style investors who look for high-quality companies run by top managers that they can partner up with for the long haul. The portfolio is compact with roughly 10 to 25 stocks. (Berkshire Hathaway BRK.A alone represents a fourth of the fund's assets.) And portfolio turnover rarely breaks out of the single digits. What distinguishes the managers from others that claim to be Buffettologists is the strength of their execution. Since its inception in July 1970, the fund has outperformed the large-blend category in 332 of the 333 rolling 10-year periods. Though the fund offers undeniable appeal, investors may want to limit their investments to a tax-deferred account, as its potential tax gain exposure currently stands at a whopping 41% of assets. The fund will require a minimum investment of $5,000 for a standard account and $2,500 for an IRA.
Western Asset's CIO Takes Medical Leave
Western Asset recently announced that Kenneth Leech, chief investment officer, will take a medical leave of absence starting May 3. Leech has served as a portfolio manager for Analyst Pick Western Asset Core Bond WATFX since September 1990 and was named--along with his team--as our 2004 Fixed-Income Manager of the Year.
Although this temporary departure comes at a sensitive time for the bond shop (its flagship funds Core Bond and Core Plus Bond WACIX have lagged the intermediate-term bond category average in both 2007 and so far in 2008), investors shouldn't fret. Deputy chief investment officer Stephen Walsh, who has worked with Leech for close to 10 years, remains and should provide continuity. The firm, which uses a team-managed approach, has a deep staff of credit analysts. We think the firm can handle the performance and personnel issues.
Regions Morgan Keegan Select Fund Saga Continues
Hyperion Brookfield Asset Management will take over as investment advisor of the troubled Regions Morgan Keegan Select fixed-income lineup, pending shareholder approval in July 2008. Regions Morgan Keegan Select High Income MKHIX, Regions Morgan Keegan Select Intermediate Bond MKIBX, Regions Morgan Keegan Select Short Term Bond MSBIX, and a number of closed-end funds are struggling to survive because of their significant exposure to lower-rated subprime home equity- and mortgage-related asset-backed issues. Compounding their problems, the funds have also experienced mass redemptions. The chance of a rebound remains slim, because much of the funds' losses are already locked in. Hyperion Brookfield's record isn't encouraging either. The institutional bond shop's commercial mortgage-backed bond (its most popular strategy) composite has lost 15.5% for the year to date through March 2008.
Vanguard Rolls Out Endowmentlike Funds
Vanguard has launched three managed-payout funds--Vanguard Managed Payout Growth Focus, Vanguard Managed Payout Growth & Distribution, and Vanguard Managed Payout Distribution Focus--that are designed to provide retirees regular monthly payments while preserving or building capital. The new funds of funds will invest in a mix of in-house domestic stock, international stock, bond, and REIT index funds, as well as Vanguard's inflation-protected bond and market-neutral funds, and money market instruments. They'll also invest in commodity-linked investments and, in the future, a yet-to-be-launched hedge fund. The estimated expense ratios fall between 0.57% and 0.58%, including the costs of the market-neutral fund's short sales. The funds will require a minimum investment of $25,000.
Putnam Changes at the Manager Level...
Putnam Equity Income PEYAX manager Austin Kairnes has left Putnam to pursue other opportunities. Kairnes was previously responsible for running the fund's quant models. He will be replaced by manager Noah Rumpf, who has been with the firm for approximately two years. We're not overly concerned by this recent manager shuffle, as lead manager Bart Geer remains at the helm applying a well-thought-out strategy. This fund remains one of the few bright spots in Putnam's lineup.
...And Possibly at the Portfolio Level
Putnam has asked shareholders of Putnam Asset Allocation: Growth PAEAX, Putnam Asset Allocation: Balanced PABAX, Putnam Asset Allocation: Conservative PACAX, Putnam Income Strategies PISFX, and Putnam Variable Trust Global Asset Allocation to approve the use of commodity-linked investments, such as commodity-linked notes and exchange-traded funds. The proposed maximum allocation is 10% of portfolio assets. Commodity-linked investments have returns that are linked to the performance of a commodity or a basket of commodities. They can be used as a diversification tool and as a hedge against inflation. The vote is scheduled for May 22, 2008.
American Beacon Is Getting a New Parent
AMR Corporation announced that it agreed to sell its wholly owned asset-management subsidiary American Beacon Advisors to Lighthouse Holdings, an affiliate of private equity firms Pharos Capital Group and TPG Capital. American Beacon Advisors is the investment advisor of American Beacon Funds, which currently has $30 billion in assets under management. AMR will retain a minority equity stake in the asset manager. Pending board and shareholder approval, the sale is expected to close this summer.