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Vanguard Reduces Fees--Again

Study looks at alternative investments usage and more. 

Morningstar Fund Analysts, 05/31/2012

Vanguard announced expense ratio decreases at 15 funds and share classes. The decreases happened at fixed-income, diversified-equity, and sector funds. Some of the firm's exchange-traded funds also saw cuts. Vanguard Dividend Appreciation VDAIX now charges a 0.25% annual expense ratio versus the previous 0.30%. Vanguard REIT VGSIX, at $25 billion the largest domestic real estate fund, saw its fees drop 2 basis points to 0.26%. This link shows the complete list of expense ratio changes. Not every fund, though, saw a decline. Vanguard Precious Metals & Mining VGPMX saw its price tag slightly increase to 0.29% from 0.27%.

Is the Popularity of Alternative Funds Waning?
Most advisors and institutions consider alternative investments a key part of their portfolios, but that majority is smaller than it has been in the past, according to a recent poll by Morningstar and Barron's.

The fourth-annual survey of alternative investments usage conducted in conjunction with the financial publication revealed 65% of advisors and 67% of institutions polled mentioned alternative investments, such as managed futures, long/short, or market-neutral strategies, were as important as or more important to a portfolio than traditional investments. But those percentages were down slightly from the previous survey. Twenty-six percent of the institutions that participated in the survey indicated they were allocating more than a fourth of their portfolios to alternatives, down from 37% in the previous study. Inflows, which had been strong in the past, have cooled off, too: $23.2 billion flowed into alternative mutual funds in 2011, down almost $2 billion from the previous year. The $11.6 billion that flowed into alternative ETFs was the lowest level since 2006. The participants--264 institutions and 365 advisors--stated high fees and lack of liquidity were some of the impediments to owning these types of investments.

Osterweis Adds Fee Breakpoints
Osterweis Strategic Income's OSTIX board has approved a new management fee breakpoint schedule that could lower expenses if assets continue to rise. The fund had charged 1% on assets up to $250 million and 0.75% on assets above that level. The fund's management fee plan now includes a third breakpoint that will drop the fund's management charge to 0.65% on assets over $2.5 billion, according to an SEC filing. The new breakpoint is unlikely to result in an immediate cost cut--the fund had $2.3 billion in assets as of the end of April 2012--but it could help prune costs if the fund that has seen consistent inflows for seven years continues to gather assets. Fees have fallen at the fund as assets have climbed, but its 0.96% expense ratio is still above average for no-load multisector bond funds.

T. Rowe Price Launches Emerging-Markets Bond Fund
T. Rowe Price recently launched Emerging Markets Corporate Bond TRECX. According to the fund's filings, a majority of the securities will be denominated in U.S. dollars. The fund will be managed by Michael Conelius, lead manager on Bronze-rated T. Rowe Price Emerging Markets Bond PREMX. Conelius built up a 28% stake in emerging-markets corporate debt in that fund as of December 2011, an indication he has experience investing in those types of markets. The fund will charge a 1.15% expense ratio, just above the emerging-markets bond category average of 1.11%.

BlackRock Fund Gets a Facelift
BlackRock Mid-Cap Value Equity BMCAX will change its name, strategy, and manager. Pending SEC and board approval, the fund will be renamed BlackRock Flexible Equity effective July 31, 2012, and will take on an all-cap, multi-investment mandate and change its benchmark to the S&P 500 from the Russell Midcap Value Index. Timothy Keefe will replace Anthony Forcione as manager. Keefe joined BlackRock's fundamental equity team in May 2012, most recently working at hedge fund manager Mayo Capital Partners and before that as chief equity officer at John Hancock.

According to the firm's filing, the fund will no longer have a specific mid-cap focus. Instead, it may invest in securities of any market capitalization. The update to the fund's objective also includes a cap of 20% of assets each in fixed income, real assets (such as commodities), and cash.

The move leaves BlackRock with one dedicated mid-cap value strategy, BlackRock Mid Cap Value Opportunities MDRFX.

Nuveen Merges Funds
Nuveen's board has approved the reorganization of Nuveen Large Cap Value FASKX into Nuveen Dividend Value FFEIX. The move comes on the heels of a disappointing long-term record at Large Cap Value. The managers were replaced by the team at Dividend Value in April 2012. The new team has posted better results and the dividend fund carries a cheaper price tag. Shareholders will vote to approve the reorganization in October 2012.

Former Seligman Manager in Insider-Trading Case
The SEC announced that former Seligman Communications and Information comanager Reema Shah pled guilty to securities fraud and is barred permanently from the securities industry. The SEC says that Shah and a Yahoo YHOO executive swapped insider tips and that the Seligman fund she comanaged and others at the firm netted a $389,000 profit from trading based on insider information on Yahoo.

As of July 31, 2012, Wellington Management will no longer be a subadvisor on Transamerica Quality Value TWQAX. Transamerica announced Levin Capital Strategies will replace Wellington. Transamerica's board of trustees also approved the liquidation of Transamerica Small & Mid Cap Value Select I2 and Transamerica Small Company Growth I2 effective June 1, 2012, and Aug. 31, 2012, respectively. In addition, Transamerica Large Cap Value will change its name to Transamerica Large Company effective July 31, 2012.

Jeppe Ladekarl has been added as a portfolio manager of John Hancock II Currency Strategies J JCUAX. Ladekarl is a director and member of subadvisor First Quadrant's global macro investment team and will work alongside current managers Ken Ferguson and Dori Levanoni.

Franklin Double Tax-Free Income FPRTX will close to new investors effective June 15, 2012. The fund will also close to all purchases (excluding purchases from the reinvestment of dividends or capital gain distributions) effective Aug. 1, 2012.

Delaware Select Growth DVEAX will close to new investors effective June 8, 2012. Current shareholders and certain retirement plans may continue to invest in the fund.

American Beacon launched American Beacon The London Company Income Equity. The fund will have a dividend focus.

Jerry Miller is no longer listed as a portfolio manager of M.D. Sass 1-3 Year Duration  U.S. Agency Bond MDSHX. The fund will continue to be managed by the remaining team members.

Paul Nestro and Brian Hopkinson are no longer listed as comanagers on GE Institutional International Equity GIEIX. Lead manager Ralph Layman and two comanagers remain. In addition, Thomas Lincoln is no longer listed as comanager on GE Institutional U.S. Equity GUSIX

Russ Kinnel, director of mutual fund research, Dan Culloton, associate director of fund analysis, and mutual fund analysts Kathryn Spica and Rob Wherry 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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