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Key Marsico Manager Leaves Firm

Former Wasatch managers give it a go on their own and more . . .

Morningstar Fund Analysts, 09/30/2011

Cory Gilchrist, lead manager of  Marsico 21st Century MXXIX and Marsico Global MGLBX, left the firm as of today. His departure punctuates a period of rocky performance on his funds that arose from macro views that clashed with the rest of the firm's. Gilchrist's exit may foreshadow significant changes in the funds' investment styles.

During his tenure at Marsico, Gilchrist was known for his bold investment style. He combined both macroeconomic and fundamental analysis in his stock picks, and he has held optimistic global economic forecasts in the past few years. Meanwhile, founder Tom Marsico and other colleagues, like fellow portfolio manager James Gendelman, believed economic growth will be more subdued. Marsico's and Gendelman's more-bearish macro views could materially shift Marsico Global's portfolio, especially its comparatively high stake in the consumer cyclical sector.

Indeed, dramatic sector weights in Gilchrist's funds reflected his daring macroeconomic views. In the past several years, Gilchrist's approach led to streaky performance. Marsico 21st Century, which has $575 million in assets, led its large-growth peers from 2003 through 2007. After 2008's market meltdown, returns have struggled to get back on track. Gilchrist's large bets on financial-services stocks versus peers have been partly to blame. Marsico Global, with $123 million in assets, has not experienced as dramatic a swing but has also struggled so far this year partly because of stock selection.

Marsico and Gendelman will assume responsibility for Marsico Global. While Gilchrist's departure is disruptive, Marsico and Gendelman are experienced portfolio managers, with Marsico running Marsico Growth MGRIX and Marsico Focus MFOCX since 1997 and Gendelman running Marsico International Opportunities MIOFX since 2000. While these strategies also have had their rough times, they have managed to hold on to solid 10-year records.

Bigger uncertainty looms for Marsico 21st Century, which will be taken over by Brandon Geisler, a Marsico research analyst with no portfolio management experience. Geisler has been an analyst at Marsico since 2006 and previously was an equity analyst at Goldman Sachs. Meanwhile, it seems Gilchrist's departure from Marsico signals that there is a limit to the firm's patience with lackluster performance when it arises from views that strongly differ from the firm's. For his part, Gilchrist says he has no immediate professional plans.

Goldman Sachs' Quant CIO to Retire
Goldman Sachs Asset Management announced that Katinka Domotorffy, CIO and head of the firm's Quantitative Investment Strategies team, will retire at year-end, the latest in a string of manager departures, generating uncertainty over the firm's quantitative strategies.

Domotorffy joined Goldman Sachs in 1998 and became the head of the Quantitative Investment Strategies group in 2009, replacing former CIOs Mark Carhart and Raymond Iwanowski. During her tenure, she was on the management team of more than 20 funds, including the Goldman Sachs Retirement series. Many of these funds have struggled in the trailing three- and five-year periods. For instance, the Retirement funds rank near the bottom of their respective categories in the trailing three-year periods.

After Domotorffy's departure, her comanagers on the affected funds will assume her fund management responsibilities. However, the continued executive turnover in this sleeve of Goldman Sachs Asset Management could indicate changes ahead.

Former Wasatch Managers Launch New Funds
Former Wasatch small-cap managers Robert Gardiner and Blake Walker are attempting to duplicate past success on their own with the launch of Grandeur Peak Global Opportunities and Grandeur Peak International Opportunities in October.

Grandeur Peak Global Opportunities will invest in both U.S. and non-U.S. small- and micro-cap stocks while Grandeur Peak International Opportunities will invest purely in foreign small- and micro-cap stocks.

The managers left Wasatch this past June after running funds there with similar mandates at Wasatch. Wasatch Global Opportunities WAGOX, managed by Gardiner and Walker since November 2008, and Wasatch International Opportunities WAIOX, managed by Walker from December 2005, both handily beat peers during those periods.

Vanguard added Admiral shares for four domestic-stock index funds and two international-stock index funds, including Vanguard Developed Markets Index VDMIX. The expense ratios for these share classes are 10 to 17 basis points lower than those of the existing expense ratios for the funds' Investor classes. The firm now offers 74 funds with Admiral share classes. The minimum investment for these shares is $10,000.

Jensen Fund JENSX is changing its name to Jensen Quality Growth Fund.

GMO filed to launch GMO Resources in December 2011. The fund will mainly invest in companies in the natural-resources sector, and it also will be able to use ETFs and derivatives. Ben Inker, Thomas Hancock, and Sam Wilderman will manage the fund.

Federated Balanced Allocation BAFAX will merge into Federated Asset Allocation FSTBX on Sept. 30, 2012.

TIAA-CREF filed to launch TIAA-CREF Lifestyle Income, TIAA-CREF Conservative, TIAA-CREF Lifestyle Moderate, TIAA-CREF Lifestyle Growth, and TIAA-CREF Lifestyle Aggressive Growth on Dec. 9, 2011. These target-risk funds will be managed by John Cunniff and Hans Erickson, who also manage TIAA-CREF's target-date series (TIAA-CREF Lifecycle 2015 TCLIX).

Value Line Convertible VALCX will merge into Value Line Income & Growth VALIX on Dec. 16, 2011.

Kermit Eck will leave the management team of Wells Fargo Advantage C&B Mid Cap Value CBMAX on Dec. 31, 2011. All other managers on the fund will remain.

The board of GMO Trust approved the liquidation of GMO Tobacco-Free Core Fund GMTCX and GMO Tax-Managed U.S. Equities Fund GTMUX. It is expected that GMO Tax-Managed U.S. Equities Fund will be liquidated on or about Oct. 31, 2011, and that GMO Tobacco-Free Core Fund will be liquidated on or about Dec. 31, 2011.

Invesco will launch yet another risk parity strategy fund, Invesco Premium Income Fund, in December. This is an outgrowth of Invesco's original risk parity strategy fund, which launched in 2009 and is managed by Scott Wolle and his asset-allocation team. Wolle also manages Invesco target-date retirement funds.

Senior analyst Karin Anderson and mutual fund analysts Kailin Liu and Ryan Leggio contributed to this report.

Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.

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