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Fund Times: The Heirs to Bill Miller's Streak

Plus, a new Vanguard fund, changes at Fidelity, and more.

Morningstar Analysts, 11/06/2006

The probable demise of Legg Mason Value LMVTX manager Bill Miller's lengthy streak of S&P 500-topping calendar-year returns has attracted a lot of attention, but that isn't the only remarkable run that's in jeopardy this year. Quaker Strategic Growth QUAGX, managed by Manu Daftary, has beaten the same domestic large-cap index in eight straight calendar years, second only to Miller's 15 straight years at Legg Mason Value.

However, few similarities exist between these two funds beyond their streaks. Daftary often delves into mid- and small-cap fare, and he trades frequently. In addition, the fund levies a 1.99% expense ratio. That's a hefty price to pay for a large-growth fund. The fund's streak is likely coming to an end, however, because Daftary was bearish on the market in 2006 and held a sizable cash stake as well as a small position in shorts. As a result, the fund is almost as far behind the index as Miller is this year.

If 2006 were to end tomorrow, the longest-running streak among large-blend funds would belong to two category members: Goldman Sachs Growth Strategy GGSAX and Manning & Napier Pro-Blend Maximum Term EXHAX. Each fund has outperformed the S&P 500 each calendar year since 1999 and is ahead of the benchmark for the year to date. They're both team-managed--Manning & Napier's fund has several managers, many of whom have been with the fund since 1995, and the Goldman fund features two managers who started in 1998 and another who started in 2001. These funds managed to overcome the fickle market headwinds that cause different sectors to underperform the S&P 500 in any given year, a difficult task for diversified offerings to achieve consistently.

A handful of other funds also started streaks against the S&P 500 in 1999 that have a good chance of continuing through the end of 2006. Among them are Schneider Small Cap Value SCMVX and American Funds Fundamental Investors ANCFX. The Schneider fund benefited from several years of small-cap stocks' strong performance. Fundamental Investors also got help from the value-led market but competed nicely during the growth-led market of 1999, too.

Vanguard Introduces a New Value Fund
Vanguard plans to launch Vanguard Structured Large-Cap Value as part of its structured equity lineup. The fund will only be offered to institutional investors who can make a $5 million minimum initial investment. The expense ratio on institutional shares will start at 0.25%. According to Vanguard, the company's Quantitative Equity Group will manage the fund and use analytical tools to identify the most attractive stocks from its benchmark, the Russell 1000 Value Index.

Benchmark and Manager Changes Likely at Two Fidelity Offerings
Fidelity Funds recently announced plans to change the benchmarks of two of its funds, Fidelity Trend FTRNX and Fidelity Discovery FDSVX, pending shareholder approval in December and January, respectively. Fidelity plans to make Trend, a large-blend offering currently benchmarked to the S&P 500 Index, into a growth-oriented fund that will track the Russell 1000 Growth Index. Likewise, Discovery, which is also benchmarked to the S&P 500, will change its bogy to the Russell 3000 Growth Index. That will, in effect, transform Discovery into an all-cap growth portfolio with the flexibility to buy smaller stocks. That's a significant departure from the fund's current look--right now it focuses mainly on large-growth companies with an average market capitalization of more than $40 billion.

Fidelity usually gains approval for changes at its own funds with relative ease, and it has indicated that each of these offerings will get new managers in 2007. Also worth noting is that Fidelity adjusts management fees up or down for some funds based on performance against their benchmarks.PAGEBREAK

Barclays Files to Introduce Several New Funds
Last week, Barclays announced plans to extend its iPath ETN lineup. ETNs trade similarly to exchange-traded funds but are actually debtlike instruments that promise to deliver the returns of an index after 30 years. Among the proposed new ETNs are several that track commodities indexes--such as AIG's Energy Total Return and Industrial Metals Total Return subindexes--as well as one that tracks the MSCI India Total Return Index.

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