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Fund Times: PIMCO Predicts U.S. Slowdown

Plus, news on Fidelity, Vanguard, Schneider, Old Mutual, and more.

Morningstar Analysts, 01/06/2006

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PIMCO's Paul McCulley, one of the firm's top gurus, has posited that the U.S. economy will slow in the coming year.

Among other facets, PIMCO is concerned over a slowdown in the housing market, which affects the average consumer's ability to tap into his house's appreciated value: "A slowdown in home price appreciation will have a bigger impact on the household's ability to withdraw equity than the consensus probably thinks." And "therefore (is) a key element in the slowdown in consumer expenditures that we anticipate."

The good news is that McCulley isn't all doom and gloom. He doesn't see a slower U.S. economy as a "destination" but more as a "direction." "We still expect the United States to be the bastion of growth and to have the tightest monetary policy in absolute terms going forward, but the differentials between U.S. growth and policy rates and global growth and policy rates should narrow."

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New Fidelity Index Funds

Fidelity is coming out with three U.S. Treasury Index Funds: Spartan ShortTerm Treasury Bond Index, Spartan Intermediate Treasury Bond Index, and Spartan LongTerm Treasury Bond Index.

Each fund will contractually cap expenses at 10 basis points, provided that investors have a minimum of $100,000 in the funds. If not, expenses will be 20 basis points. Even at that mark these funds will be less expensive than typical no-load government-bond funds. Moreover, these new offerings will be fairly unique in their respective categories. There are presently no short- or long-term U.S. Treasury index funds, and there are only a handful of intermediate-term options (from Columbia and Northern).

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