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Is AllianceBernstein's New Fund a Bid to Stem Outflows?

Fidelity hops on emerging-markets bandwagon and more ...

Morningstar Fund Analysts, 11/11/2011

AllianceBernstein filed to launch an emerging-markets equity fund in what could be a bid to stem outflows from its international lineup.

AllianceBernstein has been watching money flow out the door this year. According to Morningstar data, it has lost an estimated $3.3 billion in mutual fund assets year to date through October 2011, continuing the trend of outflows the firm has seen every quarter since September 2008. With roughly half of the outflows this year coming from the AllianceBernstein International Value ABIAX and AllianceBernstein International Growth AWPAX strategies, the firm's international funds have been hit particularly hard. In the face of this investor purge, the asset manager filed to launch AllianceBernstein Emerging Markets Equity in 2012.

While the firm may be making an attempt to woo international investors to more trendy emerging markets, this is also a late play in the game. Emerging markets as a category first ramped up in 2005, when their estimated net inflows went to $13.5 billion from roughly $4.8 billion.

The emerging-markets strategy also will be included as a sleeve within the firm's AllianceBernstein International Portfolio SIMTX and Bernstein Tax-Managed International SNIVX funds. Both sport 10-year trailing returns, which fall below roughly 80% of their peers.

Although AllianceBernstein has been running an institutional emerging-markets strategy for over 15 years, this is the first offering for retail investors. Earlier in the year the firm announced it would be going back to its "retail roots" by launching new offerings for individual investors. The firm is perhaps turning to its retail distribution in hopes to offset outflows, which have also occurred on the institutional side.

Henry D'Auria, the firm's chief investment officer of emerging markets, is slated to comanage the retail offering along with director of research for AllianceBernstein's emerging-markets value effort, Sammy Suzuki.

AllianceBernstein is turning to fixed income as well to expand its international lineup, with the firm having filed to launch AllianceBernstein International Bond in 2012. The new fund will be run by the same group as at AllianceBernstein Global Bond ANAGX, a stable group with top quartile category returns for the trailing three years. The new fund will allow for more foreign currency and derivatives exposure.

Spotted: Fidelity Riding Emerging-Markets Trend
Not one to be left out of a big crowd, Fidelity is stepping up efforts to increase its share of the popular emerging-markets category.

On Wednesday, Fidelity launched a balanced emerging-markets fund as well as an additional emerging-markets equity offering.

The balanced fund, Fidelity Total Emerging Markets FTEMX, will be run by veteran manager John Carlson. Carlson dabbled in emerging-markets equity between 2001 and 2003 as manager of Fidelity Emerging Markets FEMKX. However, he has had a much longer and more successful tenure running the emerging-markets bond fund, Fidelity New Markets Income FNMIX. The fund is a Morningstar analyst favorite, and it has outperformed the emerging-markets bond category over his tenure.

Carlson will call the shots on the new fund's stock and bond split, as well as head the fixed-income portfolio. If the bond portfolio is managed similarly to New Markets Income, expect Carlson to focus on USD-denominated bonds, a slower-growing area than local-currency bonds.

The equity portfolio will be managed by the same team at Fidelity Series Emerging Markets FEMSX, a middling performer that feeds Fidelity's target-date series.

Fidelity Emerging Markets Discovery Fund FEDDX is the second new addition. According to Fidelity, the fund will focus on consumer sectors and benchmark against the MSCI Emerging Markets small- and mid-cap indexes. The fund's manager, Ashish Swarup, assists with the roughly 10% emerging-markets stake of Fidelity Diversified International FDIVX.

While Fidelity has not publicly disclosed Swarup's record, Carlson's experience is promising for the balanced option.

Capital Gains Season Starts
Fund companies are announcing capital gains distributions on their funds, so it's a good time for investors to go to the websites of their funds and check if they're affected.

Some well-known funds have come out with material distributions. For example, Longleaf Partners said its Longleaf Partners Small-Cap LLSCX will have a capital gains distribution that equaled 7.1% of the fund's net asset value as of Nov. 9. Vanguard announced preliminary capital gains distributions for Vanguard Capital Opportunity VHCAX, Vanguard PRIMECAP VPMAX, and Vanguard Health Care VGHCX that were all between 3% and 5% of the funds' NAVs as of Nov. 9.

Taxes shrink returns, but these amounts are generally within the range of the funds' historical distributions. Moreover, Longleaf Partners Small-Cap, Vanguard Capital Opportunity, and Vanguard PRIMECAP are closed to new investors, so distributions are not diluted among a rising investor base.

After a brutal drop of 19% year to date, the short-lived American Beacon Evercore Small Cap Equity ASEAX is closing ahead of its liquidation on or about Dec. 15, 2011.

Dreyfus has closed and plans to liquidate the Dreyfus Select Managers Large Cap Growth DSLAX as of Dec. 13, 2011. Dreyfus High Yield Municipal Bond DYBIX adds Jeffrey Burger as a manager, working with current portfolio manager James Welch. Dreyfus Intermediate Municipal Bond DITEX added Thomas Casey as a manager to work with current portfolio manager Steven W. Harvey. Marshall Emerging Markets Equity MIEMX replaces subadvisor Trilogy Global Advisors with M&I Investments Management. Marshall International Stock MRIIX will liquidate on or about December 29, 2011.
Editorial director Kevin McDevitt, senior mutual fund analysts Bill Rocco and Katie Reichart, and mutual fund analysts Kathryn Young and Kathryn Spica 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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