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Fund Times: ProFunds Group Files for 66 ETFs You Don't Need

Plus, news on global high-yield markets, Evergreen, Franklin, Westport, awful funds, and more.

Morningstar Analysts, 09/18/2006

ProFunds Group recently filed with the SEC to offer 66 exchange-traded funds, greatly expanding the firm's lineup. Unfortunately, the vast majority of the funds focus either on narrow industry sectors that would likely duplicate exposure for investors that have broadly diversified portfolios, or more specialized indexes that typical investors don't need to be involved with.

The funds follow 22 strategies, with three different versions of each offering. The first strategy is designed to provide 200% of its benchmark's performance, the next to provide the inverse of the benchmark performance, and the final strategy is designed to provide negative 200% of benchmark results. We suggest most investors stay away.

High-Yield Issuance Increased in August
According to Merrill Lynch's Global High Yield Strategy reports, issuance of high-yield bonds has increased globally. In August, $13.3 billion in new bonds were issued, which is nearly triple the amount issued in July and is about 80% higher than the amount a year prior.

However, while more high-yield bonds came to market in August, this segment of the fixed-income world didn't lead the way in terms of performance. In a separate report, Merrill Lynch states that: "Performance fell right in line with quality, with higher quality triple-Bs outperforming all the way down to triple-C underperformance. Distressed bonds were the month's laggards," and overall 10-Year Treasuries and investment-grade debt beat high-yield bonds in a month it clearly didn't pay to take added credit risk.

Those results extend to even higher-quality bonds and bond funds, as can be seen from the average August return in our long-term government category of 2.93%, and the average high-yield category return of 1.3% for the same period.

Manager Change at Evergreen Health Care
Evergreen Investments (Wachovia Corp.'s investment management business) recently announced the departure of manager Liu-Er Chen from Evergreen Health Care EHABX, who has been replaced by Walter T. McCormick. McCormick also runs Evergreen Fundamental Large Cap EVVTX and is comanager of Evergreen Balanced EKBBX.

This is the second manager change at Evergreen over the past month. Dana Erikson and Richard Cryan left the high-yield team at Evergreen in August. We hope this is not part of a broader trend developing here, as manager turnover can produce inconsistent strategy implementation and spotty performance at funds where the transition is not handled well.

Franklin CFO Departs
Franklin Resources BEN, also known as Franklin Templeton Investments, announced that chief financial officer James Baio will be leaving the firm Oct. 20 to pursue a similar position at a private financial-services firm. Franklin's executive vice president of enterprise risk management, Kenneth Lewis, will step into the position until a permanent replacement is found.

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