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New Hires Signal Transition for BlackRock's Asia Funds

A top choice in the small-cap growth category closes to new investors, and more ...

Morningstar Analysts, 09/15/2011

When it comes to its retail mutual fund business in Asia, BlackRock is still trying to find its legs.

Recently, BlackRock BLK said Nick Scott had quit as head of its relatively new Asian-equities team. Scott had been hired in 2007 from Prudential PLC PUK to build out the Asian-equities team partly by moving staff from BlackRock's Princeton, N.J., and London offices. During his tenure, funds managed by his team, such as BlackRock Pacific MDPCX, generated lackluster performance versus peers in the diversified Pacific/Asia category.

BlackRock may be the world's largest asset manager with a mammoth distribution network, but fund performance matters. Scott left more than 15 BlackRock retail mutual funds that are focused on investment in Asia, but together they had less than $4 billion in assets globally. Arguably, the major focus for BlackRock's Asia Pacific operations in the past two years has been integrating the firm's massive 2009 acquisition of Barclays Global Investors in the region. BGI's global chief operating officer, Rohit Bhagat, had agreed to become chairman of BlackRock Asia in order to lead the integration effort for two years. In announcing last week that Bhagat is stepping down as chairman, BlackRock signaled that the integration effort is complete, but the firm also said Bhagat is leaving the firm.

While BlackRock may be squarely focused on growing its newly integrated Asia business, it's difficult to see how a solid investment culture at its retail mutual fund business there is being cultivated without long-term stability within top management. Moreover, there is reason to be cautious about new management. Scott's replacement, Andrew Swan, was hired from JP Morgan Asset Management, where he was a portfolio manager in Asia. However, some of the funds he helped manage, such as JPMorgan Asia Equity JAEAX, don't have much better records than Scott's.

Meanwhile, BlackRock said last week that Bhagat's replacement is Mark McCombe, who was the chief executive of HSBC Hong Kong and, before that, head of HSBC Global Asset Management. While McCombe oversaw strong asset growth in HSBC's emerging-markets funds, that doesn't necessarily equate to improving fund stewardship for the individual investor.

Shareholders Gain From Soft Close at Brown Capital Management
Current investors in Brown Capital Management Small Company BCSIX will benefit from the decision of its board to "soft" close the fund. On Oct. 3, the fund, which has $1.3 billion in assets, will be closed to new investors while existing investors will be able to add money, as will clients of financial advisors using certain platforms.

Brown Capital did close the fund once before in 2003 when assets reached roughly $700 million. The firm reopened the fund in 2007 after assets declined to $300 million.

The move has been in the works for several months back when Brown Capital first noticed capacity constraints emerging for the fund. This shareholder-friendly move should allow the fund's managers to maintain their relatively concentrated portfolio of small-cap and sometimes-illiquid holdings. The fund remains one of Morningstar analysts' top choices in the small-growth category.

Expect a Smooth Succession at Winslow Green Growth
Winslow Green Growth WGGFX manager Jack Robinson is stepping aside, but investors should expect a smooth transition. On Oct. 1, Karina Funk, Elizabeth Levy, and David Powell will replace Robinson as comanagers on the fund.

Winslow has been preparing for this succession for more than one year. The new managers are well-suited to continue the fund's strategy of investing in environmentally responsible firms. Although not officially listed as such, Funk effectively served as assistant portfolio manager to Robinson since the beginning of 2010. Levy and Powell have been comanagers of the Winslow Green Large Cap institutional portfolio since its inception in January 2010. Moreover, Robinson will remain a member of the investment team in an advisory capacity.

Munder Asset Allocation Balanced
MUBAX will liquidate on Oct. 14. The fund launched in 1993 and saw assets peak at $132 million in 2005 after besting two thirds of its category peers for two consecutive years. Relative performance and assets have fallen off in recent years, however, and the fund liquidates with less than $34 million under management.

Legg Mason's fund board voted to remove short-term redemption fees from a swath of the firm's fund offerings. On Oct. 1, redemption fees will drop to zero from 2% across all share classes at Legg Mason Batterymarch International Equity LMGEX, Legg Mason Batterymarch U.S. Small Cap Equity LMBAX, Legg Mason Batterymarch Emerging Markets LMRAX, Legg Mason BW International Opportunities Bond LMOTX, and Legg Mason BW Global Opportunities Bond GOBAX.

Invesco Van Kampen Global Tactical Asset Allocation will liquidate on Oct. 28. As part of the liquidation process, the $21 million fund will close to new investments on Sept. 29.

Lee Reddin has left as comanager of Columbia Mortgage and Asset Backed NMTGX. Michael Zazzarino, who has been comanager of the fund since 2007, will be lead manager.

HighMark Funds is merging eight equity and allocation funds that range from $16 million to $53 million in assets. On Oct. 31, HighMark Fundamental Equity HMFAX will be merged into HighMark Core Equity HCEAX, HighMark Small Cap Value HMSCX will be merged into HighMark Small Cap Advantage HSAAX, HighMark Diversified Equity Allocation HEAAX will be merged into HighMark Capital Growth Allocation HMAAX, HighMark Income Plus Allocation HMPAX will be merged into HighMark Growth & Income Allocation HMRAX.

Dimensional Fund Advisors filed to register an Institutional share class for a new offering, DFA World ex U.S. Government Fixed Income. According to the preliminary prospectus, the no-load offering would invest at least 80% of its net assets in fixed-income issues from foreign developed nations.

Senior mutual fund analyst David Kathman and mutual fund analysts Janet Yang and Flynn Murphy contributed to this report.

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