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Fund Times: Equity Offerings Fuel Growth of Closed-End Funds

Plus, news on Longleaf, Fidelity, Rainier, Vanguard, American Century, and more.

Morningstar Analysts, 03/27/2006

Assets in closed-end funds continue to grow, according to a new report by the Investment Company Institute, and surprisingly, closed-end equity funds are fueling the increase.

At year-end 2005, assets in closed-end funds had grown to $276 billion, the fourth consecutive year that assets have increased, according the ICI report. The report also said that although nearly two thirds of closed-end assets are still housed in bond funds, "from year-end 2000 through 2005, assets in closed-end equity funds increased by $68 billion, or 186%, while assets in closed-end bond funds rose by $65 billion, or 61%."

Over the same time period, the number of closed-end funds on offer had also increased dramatically, according to the report, from 482 at the end of 2000 to 643 at the end of last year, a 33% increase. It is estimated that these funds are held by as many as 2 million households in the United States, making them an important segment of the investment marketplace.

Longleaf Funds Struggle with Fairfax Holdings

Southeastern Asset Management's Longleaf Partners International LLINX and Longleaf Partners Small-Cap LLSCX are struggling under the weight of exposure to Fairfax Financial Holdings FFH.

On Wednesday, Fairfax announced that it received "an additional subpoena from the Securities and Exchange Commission regarding the accounting of its nontraditional insurance contracts at its nSpire Re and Odyssey Re ORH subsidiaries," according to Morningstar stock analyst Justin Fuller.

These regulatory troubles have been partly to blame for the greater-than-20% decline in Fairfax's stock price for the year to date through March 22. This decline hits the two Longleaf funds particularly hard, because they both hold positions in excess of 4.5% of net assets in each fund. Added to this, Small-Cap also holds a small position in Odyssey Re, Fairfax's reinsurance unit. Odyssey's stock price is down 15% for the year to date.

Fidelity Laptop Holding Customer Data Stolen

According to The Boston Globe, Fidelity Investments said Wednesday that an employee's laptop computer containing sensitive information on 196,000 Hewlett-Packard HPQ retirement account customers was stolen.

This breach in investor privacy and security comes only two months after Ameriprise Financial notified approximately 226,000 people that their private data was compromised, also through the theft of a laptop containing customer information.

Fidelity Institutional Arm Hires New CIO

Pyramis Global Advisors, Fidelity Investments' institutional investment management division, announced on Wednesday the appointment of Young D. Chin to serve as chief investment officer.

Chin has 28 years experience in the investment industry, most recently serving as president and chief executive officer to Gartmore Global Investments, and co-global investment officer for equities, to the Gartmore Group. In 1978, Chin began his investment career at Harris Bank, in Chicago, where for eight years he served as director of the bank's quantitative investment consulting service. From 1999 to 2001, he served as managing director and director of equity management research for Brown Brothers Harriman in New York.

Rainier to Close Fund to New Investors

Rainier Investment Management announced Wednesday that it will close Rainier Small/Mid Cap Equity RIMSX to new investors, effective March 31.

With the fund's assets approaching $3 billion, of which $1.2 billion is held in small-cap stocks, the closure is aimed at maintaining flexibility in the small-cap arena. Investors as of the closing date may continue to invest in the fund, as can certain clients of investment advisors and employer-sponsored retirement plans that have existing arrangements with Rainier.

With more assets possibly coming from these sources, we'll be watching to see how effective this closure will be in moderating capital flows into the fund.

Vanguard Boosts Stock Weighting in Target Retirement Funds

Vanguard announced changes to its Target Retirement funds that will bring its allocations closer to those of most other fund companies.

Vanguard's funds stood out in the target-date crowd because they had significantly higher bond stakes than other funds did, so it's not a big surprise to see it cranking up equity exposure.

For example Vanguard Target Retirement Income VTINX will shift 10% of assets from bond funds into stock funds. After the changes, the fund will have about 70% of assets in fixed income.

Vanguard Target Retirement 2015 VTXVX will move nearly 20% of assets out of bonds and put nearly all of that amount into Vanguard Total Stock Market VTSMX. Thus, the asset mix will go from slightly over half in bonds to one third in bonds. Vanguard Inflation-Protected Bond Fund VIPSX will be eliminated from the 2015 plan. The new mix will still be more conservative than T. Rowe Price Retirement 2015 Fund TRRGX, which has 70% of its assets in equities.

Vanguard also launched five new Target Retirement funds for the following retirement dates: 2010, 2020, 2030, 2040, and 2050.

American Century Hires New CIO for Foreign Funds

American Century said last week that it hired Enrique Chang, 43, as senior vice president and chief investment officer of international equity.

Chang had been at Munder Capital Management, where he served as president and chief investment officer. In his new role, Chang assumes leadership over the investment professionals and supporting staff responsible for $7.8 billion in assets under management.

BNY Hamilton Names New Managers

BNY Hamilton Small Cap Growth BNSIX named Arthur Weise as new manager replacing John Lui. Weise had worked at Trainer Wortham & Co., where he was director of research and the consumer/services analyst.

BNY Hamilton International Equity BNUIX named Todd Rose as comanager replacing Robert Windsor. Lloyd Buchanan, who has been a comanager since 2003, remains at the fund.


Evergreen Investments announced Wednesday that the board of Evergreen Funds has approved the merger of Evergreen Strategic Value ESSAX into Evergreen Disciplined Value EDSAX. Should shareholders approve the merger, it is proposed to take place in late June.

Minneapolis-based RiverSource Investments, the mutual fund arm of Ameriprise Financial AMP, recently completed the merger of RiverSource Insured Tax-Exempt into RiverSource Tax-Exempt Bond INTAX. The similarity between the two funds' investment styles was cited as a major reason for the merger.

James D. Oberweis, founder of Oberweis Asset Management and former manager of Oberweis Emerging Growth OBEGX, conceded the race for the Illinois Republican nomination for governor to Judy Baar Topinka, the state's treasurer.

Van Kampen Small Cap Value VSCAX reopened to new investors on March 10. The $312 million fund has suffered from subpar performance over the trailing three- and five-year periods.

Dreyfus has filed to launch a new emerging-markets fund. Dreyfus has a name for the fund--Dreyfus Premier Global Emerging Markets--but it didn't say who would manage it.

A new filing reveals that Artisan Opportunistic Value is expected to launch today. The filing says the fund will have an expense ratio of 1.48%. The fund will be run by Scott Satterwhite, Jim Kieffer, and George Sertl, the first two of whom comanage Artisan Mid Cap Value ARTQX and Artisan Small Cap Value ARTVX.

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