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Fund Times: FPA Reopens Successful Fund

Plus, new ETFs, Fidelity's latest offerings, and more.

Morningstar Analysts, 10/08/2007

FPA Crescent FPACX, which has one of the strongest 10-year records in the moderate-allocation category, reopened Tuesday for direct investment via the fund company. Manager Steve Romick says the fund has seen net redemptions since closing in 2005. Initially, that wasn't an issue because of its (still-large) cash stake that frequently exceeds 25% of assets. But Romick notes that prolonged net redemptions, even with cash on hand, may impair his ability to run the fund. He's also been finding more opportunities that meet his strict investment criteria, and he thinks even more may become available soon. We don't view this reopening with alarm: Investors won't be able to purchase shares through fund supermarkets such as Schwab, so asset inflows will likely be limited and come at a reasonable pace.

State Street Joins International-Bond ETF Race
State Street Global Advisors has filed with the SEC to launch an overseas fixed-income ETF. The proposed ETF will track the Lehman Global Treasury ex-US Index, a collection of government-issued debt from countries with investment-grade ratings. While this index prominently features debt of western-European and developed Asian countries, it also has a splash of emerging economies' debt, such as that of Mexico and South Africa. The management fee will be 0.50%, and the fund will face primary competition from similar iShares and PowerShares ETFs.

Fidelity Launches Income-Replacement Funds
In a twist on traditional target-date retirement funds, Fidelity launched new investments that offer an optional annual income payout. This group of 11 fund-of-funds, with horizon dates every two years from 2016 through 2036, offers the same asset-allocation feature as traditional target-date funds, which gradually increases portfolios' fixed-income holdings as the selected year nears. But each fund will have an optional annual income payout for investors who desire an annuitylike feature, provided that, according to Fidelity, "the fund's investment strategy works as intended." In other words, Fidelity makes an implicit assumption that, if its quantitatively driven forecasts are accurate, it will have no problems offering yearly payouts that keep pace with inflation. The payments draw down an investor's principal gradually, targeting liquidation in the fund's named year.

Separately, the firm has launched a Growth and Guaranteed Income variable annuity, a similar product. Purchased as a contract via a one-time payment, the annuity's annual payout adjusts over time based on performance of stock markets and the amount of already-received payouts, both of which continuously affect the contract's value. A single-life-coverage contract will cost 1.10% of the purchased amount, which according to Fidelity is more than 30% below the industry's average annuity fee.

Morgan Stanley Veteran to Retire at Month's End
Morgan Stanley Institutional Global Value Equity
's MSGEX Frances Campion, the fund's lead portfolio manager and a team member since 1992, is retiring from the firm Oct. 31. Colin McQueen, seasoned with nearly 20 years in the business and a comanager on Global Value Equity since 2005, will take over the lead role with support from the remaining four other comanagers. This announcement won't affect the current situation: McQueen has been running this fund for a few months while Campion was out on personal leave, and the two have worked closely together in anticipation of a possible transition.PAGEBREAK

Fidelity Shuffles Managers at Several Funds
Derek Young, comanager of Fidelity Global Balanced FGBLX, Fidelity Four-In-One Index FFNOX, and several other funds, now has even more manager duties. He joins longtime manager Richard Habermann on Fidelity's lineup of Asset Manager funds including Asset Manager 20% FASIX, Asset Manager 50% FASMX, Asset Manager 70% FASGX, and Asset Manager 85% FAMRX. Elsewhere in Fidelity's asset-allocation group, Christopher Sharpe succeeds Jonathon Shelon at all of the firm's 529 college-savings plans. Like Young, Sharpe remains comanager of Four-In-One Index and several other funds.

The firm also announced two changes to its actively managed lineup. First, Stephen DuFour joins Fidelity Worldwide FWWFX, where he assumes Jeffrey Feingold's responsibilities for managing the fund's U.S. equities portion. DuFour has managed several funds over the last 10 years and will retain his current assignment at Fidelity Focused Stock FTQGX. Second, Maurice Fitz has taken the reins from Lindsay Connor at Fidelity Select Transportation FSRFX.

Retirement-Focused ETFs Hit the Exchanges
TDAX Funds has launched five target-date retirement ETFs. All five ETFs track Zacks lifecycle indexes, which are geared toward investors retiring in 2010, 2020, 2030, 2040, or those already in retirement. Investors should closely examine the underlying composition of these ETFs and compare them on both the asset allocation and expense basis with actively managed target-date funds. For example, TDAX Independence 2040 TDV is composed of 24% international stock, 73% domestic stock, and 3% fixed-income holdings. At the other end of the spectrum, TDAX Independence In-Target TDX invests only 11% of assets in international and domestic equities (combined), with the rest devoted to fixed-income securities. Each ETF charges 0.65% annually, not significantly less than entrenched open-end target-date funds from Fidelity or T. Rowe Price.

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