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Fund Times: Favorite Emerging-Markets Manager Departs

Plus, news on Fidelity fund reopening, manager changes at Janus, and more.

Morningstar Analysts, 05/07/2007

In an unexpected turn of events, OppenheimerFunds announced May 1 that the manager of Oppenheimer Developing Markets ODMAX, Mark Madden, has departed the fund and will be succeeded by Justin Leverenz. As a result, we've decided to drop the offering from our Fund Analysts Picks list for the diversified emerging-markets category, leaving only two options as our favorite choices in the category.

While Madden had only run the fund since late 2004, and his contrarian style underperformed in 2006, we nevertheless had confidence in his approach and abilities. Our stance was partly due to Madden's experience and success at his prior charge, Pioneer Emerging Markets PEMFX, which he ran from mid-1994 through mid-2004. During his time leading the Pioneer fund, Madden produced top-third results in six of his nine calendar years, proving his talent under a variety of market conditions.

Leverenz has some good experience, having led the equity research effort for Goldman Sachs-Taiwan, where he also served as director of Pan-Asian technology research. He also ran some China and Taiwan country-specific accounts for Martin Currie Investments for a short while. Since joining Oppenheimer in July 2004, Leverenz has served as senior analyst for Oppenheimer Global OPPAX, run by veteran manager Rajeev Bhaman who used to lead the Developing Markets fund, but Developing Markets will be Leverenz's first stint running a diversified emerging-markets offering. While Leverenz will run the fund in the same general style as Madden did, and as Bhaman did before him, we think the change raises some concerns for fund shareholders but do not think there's any reason to panic. Oppenheimer's global group has a sizable number of talented managers and analysts and should provide good support for Leverenz as he takes over.

Fidelity Reopens Hemorrhaging Mid-Cap Fund
Fidelity Investments reopened Fidelity New Millennium FMILX to new investments. The mid-cap growth offering was formerly led by Fidelity veteran Neal Miller and is now run by John Roth. Miller, who ran the fund in a freewheeling style from its inception in 1992 until June 2006, had delivered impressive early results, causing the fund to gain assets rapidly and leading Fidelity to close it in 1996. Since his retirement last year, the fund has seen tremendous outflows, leading Fidelity to reconsider the close. This move makes sense, as new assets could help offset outflows, giving Roth some added flexibility here.

Janus Sector-Fund Managers Leave
Two managers have left Janus sector funds. Brad Slingerlend is leaving Janus Global Technology JAGTX, and Tom Malley is leaving Janus Global Life Sciences JAGLX. The comanager of Global Technology, Barney Wilson, will take the lead at that offering, and health-care analyst Andrew Acker will take charge of Global Life Sciences.

While both Acker and Wilson are both experienced analysts and Janus' research effort, on which these funds will rely, has improved, investors should approach these funds with caution. Sector funds are risky enough when run by long-tenured managers. The changes cast uncertainty on these offerings.

Fidelity Launches New Index Offerings
Fidelity Investments will launch three new enhanced index funds: Fidelity Large Cap Value Enhanced Index, Fidelity Large Cap Core Enhanced Index, and Fidelity Large Cap Growth Enhanced Index. The three funds will attempt to best the Russell 1000 Value Index, Standard & Poor's 500 Index, and Russell 1000 Growth Index, respectively, by using a quantitative system that takes factors such as historical valuation, growth, and profitability into account.

Vanguard Plans to Debut TIPS ETF
The Vanguard Group hopes to offer an exchange-traded share class of Vanguard Inflation-Protected Securities VIPSX, according to a filing with the SEC. It would be one of the industry's first exchange-traded funds with aspects of active management. The ETF's managers, Kenneth Volpert and John Hollyer, will invest 80% of fund assets in inflation-indexed bonds, typically issued by the U.S. government or its agencies and instrumentalities; however, they'll be able to place 20% of assets outside of inflation-linked bonds when the sector looks unattractive to them. This noninflation segment can be invested in Treasuries, agency, corporate, or mortgage-backed issues, giving them some flexibility in their mandate.

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