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Tillinghast Back at Fidelity Low-Priced Stock

PIMCO wades into dividend investing and more...

Morningstar Fund Analysts, 01/13/2012

Fidelity Gets Back Star Manager, Shakes Up Its Ranks Fidelity Low-Priced Stock FLPSX manager Joel Tillinghast has returned from his four-month leave of absence, just as the firm announced major changes at several funds.

Tillinghast's return is welcome news for investors. He took a break from running the fund he has managed since 1989 in order to write a book and mentor some of the firm's new analysts. In his absence, Fidelity assigned several analysts that had worked closely with him, including Jamie Harmon, Justin Bennett, Katherine Buck, Rayna Lesser, John Mirshekari, and Shadman Riaz, to oversee the day-to-day stock-picking duties. While those were temporary assignments, Fidelity now says the comanagers will keep running 5% of the fund's assets (or about $1.6 billion). Harmon, the manager of Fidelity Advisor Small Cap FSCDX and leader of the team while Tillinghast was away, will control the largest slice. There is no evidence that Tillinghast is on his way out--indeed, he plans to manage the fund for several more years. However, Fidelity did say this was part of the succession plan at this offering. For now, the management structure makes sense. By sticking around, Tillinghast, whose strategy in many regards is more art than formula, can more easily pass along his knowledge to the fund's heir apparent.

Tillinghast's return wasn't the only news. Fidelity also said it had given the boot to Fidelity Overseas FOSFX manager Ian Hart. In contrast to most of the firm's international managers, Hart often diverged boldly from his peers and the MSCI EAFE Index--an approach that led to more misses than hits during his five-year tenure. Hart's successor is Vincent Montemaggiore, who most recently delivered solid results amid a highly challenging environment at Fidelity Select Banking FSRBX. Unlike Hart, who ran Fidelity Europe Capital Appreciation FECAX before running Overseas, Montemaggiore has little international investing experience. His previous assignments, which included Fidelity Select Industrial Equipment FSCGX, required global research, but his investments were primarily domestic in nature. Montemaggiore's lack of experience running both international and diversified strategies is a potential red flag for investors here.

In addition, Fidelity backpedaled on its earlier announcement that Jeff Feingold, who recently took the helm at Fidelity Magellan FMAGX, would continue to run his previous charges: Fidelity Trend FTRNX, Fidelity Large-Cap Growth FSLGX, and Fidelity Advisor Strategic Growth FTQAX. Feingold is now solely concentrating on Magellan. Meanwhile, Scott Offen, who recently took the reins at Fidelity Equity Income II FEQTX is being taken off of Fidelity Value Discovery FEQTX, a fund he has run since its 2002 inception.

Those decisions seem to break from a trend occurring inside Fidelity. In some cases, especially with the firm's sector offerings, managers have been allowed to retain their roles running the smaller funds while taking on larger diversified offerings. Indeed, Dan Kelley, who is taking the duties Feingold is shedding, will continue to run Fidelity Select Construction & Housing FSHOX, a fund he has successfully run since 2007. Sean Gavin, the current manager of Fidelity Select Transportation FSRFX, is adding Value Discovery to his duties. Montemaggiore will continue to run Fidelity Select Banking even as he takes over Fidelity Overseas.

PIMCO Jumps on Dividend Trend
PIMCO, one of the world's largest fixed income shops, recently joined the crowded equity income field by launching two dividend-focused funds. PIMCO Dividend and Income Builder PQIIX and PIMCO EqS Dividend PQDIX will search the globe for high-yielding stocks (although the first offering will also invest in fixed income). Managers Brad Kinkelaar and Cliff Remily have joined PIMCO from Thornburg Investment Income Builder TIBAX, which has a solid record since launching in late 2002.

PIMCO's foray into dividend-paying equities follows PIMCO co-CIO Bill Gross' 2011 Morningstar Investment Conference keynote speech in which he recommended blue-chip, dividend-paying stocks. He argued the yields of large, global, dividend-paying stocks looked attractive relative to Treasuries. The launches continue the expansion of PIMCO's equity lineup under Neel Kashkari. The PIMCO EqS lineup now has three funds.

The dividend theme has gained momentum lately since equity income funds--the tag usually associated with them--held up well as a group in 2008 and overall offer the chance for both capital appreciation and yield. Indeed, the average fund in that universe has a 2.5% dividend yield versus 2% for the S&P 500. That's helped attract assets. These funds have taken in over $16.6 billion the last year, according to Morningstar fund flow data. In addition, other fund companies have launched or acquired dividend funds. For example, Goldman Sachs recently announced its acquisition of tiny $170 million Rising Dividend Growth fund ICRDX, which has a solid five-year record.

Window of Opportunity at FPA Capital
FPA Capital FPPTX has been closed since 2004, but fans of the strategy now have a backdoor opportunity to invest in it. FPA has reopened the separate account version of the fund--Small/Mid-Cap Absolute Value--which is run by the same team behind the mutual fund. Few investors will be able to take advantage, though: the minimum investment is $20 million.

New Offerings Give Advisors a Short Cut
American Funds recently filed for eight new one-stop asset allocation offerings. The new American Funds Portfolio Series funds-of-funds will invest in varying mixes of existing American Funds with strategies ranging from capital preservation to capital appreciation. The funds are designed to help advisors create an asset allocation plan by buying one fund instead of many. The six-member oversight committee that monitors the family's Target Date Retirement will be responsible for this series, too. The funds are expected to launch in spring 2012.

American has long been known for its judicious introduction of new funds. However, in the last few years there has been a notable uptick in the firm's new product offerings. It most recently launched Global Balanced GBLAX in early 2011, after launching three other new funds in 2010. In the decade before that the firm only launched three funds outside of its target date lineup.

American isn't chasing a trend here though. Indeed, these funds repackage existing offerings, and similar funds like T. Rowe Price's Spectrum and Vanguard's LifeStrategy series have been around for years. Many of those funds have seen outflows recently, due in part to the rise of target date funds. It remains to be seen if American's new asset allocation funds can funnel more assets into the family, which leads its fund company peers in outflows for the last three years in a row.

PIMCO ETF Finally Set for Launch
PIMCO said it will launch the highly anticipated ETF version of its flagship Total Return bond fund PTTRX on March 1, 2012. The ETF will be the highest-profile test of whether actively managed strategies can be effective in the ETF structure. The fund will levy an annual expense ratio of 0.55%, cheaper than the mutual fund's A shares but more expensive than the institutional share class. The ETF also isn't an exact clone of the mutual fund since it won't be able to invest in some derivatives.

Etc.
John Hancock Mutual Funds filed to launch the Strategic Equity Allocation Fund. The fund will invest globally across the market-cap spectrum. The portfolio managers will include Bob Boyda and Steve Medina, who run the firm's Lifestyle allocation funds, among other offerings.

John Hancock also announced it is teaming up with Scotland-based Standard Life Investments to launch John Hancock Global Absolute Return Strategies JHAAX. The fund will be subadvised by a team from Standard Life that has run a similar strategy overseas with decent results.

Manning & Napier's senior research group, which oversees all of the firm's funds, has added two more members. Ebrahim Busheri, director of the emerging opportunities group, and Christopher Petrosino, senior analyst, join 10 existing members of the senior research group.

Stephen Moody is no longer the portfolio manager of the Walden Balanced Fund WSBFX.

Mutual fund analysts Chris Davis, Janet Yang, and Flynn Murphy 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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