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Controversy Leads to BlackRock Manager Exit

Eaton Vance acquires stake in Canadian firm, Columbia alters a fund strategy and more...

Morningstar Fund Analysts, 06/22/2012

Dan Rice had run BlackRock Energy & Resources SSGRX and its predecessor fund for over 20 years, steering it to a solid record during that time period. But he recently stepped down from his role on the offering and will leave BlackRock by the end of the year after intense scrutiny of a deal between Rice Energy, a natural gas drilling company he helped found in 2005 that is now run by his sons, and fund holding Alpha Natural Resources ANR. After Rice Energy entered into a joint venture with Alpha in 2010, the fund's position increased. BlackRock BLK says the deal had nothing to do with the portfolio move; rather, the increased exposure was due to Alpha acquiring Massey Energy, a large portfolio holding at the time. Rice had recused himself from any dealings between Rice Energy and Alpha and had also ceased having any day-to-day management role at the family-run firm. But the setup raised concerns about whether Rice was putting his own interests before shareholders'.

BlackRock announced comanager Denis Walsh, who worked closely on the fund with Rice the last 13 years, will take over the reins, along with Dan Neumann, who oversees several BlackRock energy closed-end funds. There are no indications the duo will alter the fund's strategy of using energy price forecasts to find attractively priced companies, mostly in the small- and mid-cap universes. That strategy has generated peer-beating results but above-average risk. Indeed, the fund is one of the most volatile in the equity energy category and has lost more in down markets than rivals.

Rice won't be going very far, at least for now. He'll manage BlackRock institutional accounts until the end of the year, when those responsibilities will then be transferred to Walsh and Neumann. Rice has agreed to not take any leadership role at Rice Energy while employed at BlackRock or assist the firm in any public fundraising it may do until he exits BlackRock.

The fund's rating remains under review for now.

Eaton Vance Shores Up International Equity Resources
Eaton Vance EV is moving to strengthen its capabilities in international equities by acquiring a 49% stake in investment management firm Hexavest in a cash transaction. Based in Montreal, Canada, Hexavest advises primarily institutional clients and employs a top-down, global approach to portfolio allocation. Through May, the firm managed nearly $10 billion in assets, primarily in global and international strategies. Eaton Vance will retain an option to purchase an additional 26% stake in Hexavest after five years, according to news reports. In the interim, Eaton Vance intends to launch a series of mutual funds in the U.S. and internationally that will be subadvised by Hexavest.   

The move fits with Eaton Vance's history of supplementing the firm's organic growth with acquisitions and strategic subadvisor partnerships. In recent years the firm has brought new global macro strategies to the fore, including the December launch of Eaton Vance Parametric Structured Currency EAPSX. But adding Hexavest as a subadvisor--and a potential future subsidiary--gives Eaton Vance an opportunity to build out its relatively small global and international fund lineup.

Changes Continue at Columbia Fund 
Columbia announced Strategic Investor CSVAX will be renamed Columbia Global Dividend Opportunity. The fund will also adopt a new strategy: It will invest at least 80% of its assets in income-producing securities, it will have a 40% minimum exposure to foreign companies, and it will no longer have a focus on small caps, convertible securities, and special situations. In addition, its benchmark index will now be the MSCI All World Country Index. The tweaks to the strategy will occur in August. The changes to the fund's name and strategy follow an earlier announcement in April 2012 that outlined an overhaul of the management team. After posting a lackluster record, comanagers Emil Gjester and Jonas Patrikson stepped down and will leave the firm later this year. Michael Welter has also been relieved of his manager role but is still an analyst at Columbia. They were replaced by Steve Schroll, Laton Spahr, and Paul Stocking, who help run six other Columbia funds, including several dividend-focused offerings.  

Michael Carey was removed as a portfolio comanager of BlackRock International Opportunities BREAX and BlackRock Global Opportunities BROAX. The funds will retain Thomas Callan, who has managed the former since 1999 and the latter since its 2006 inception. New comanager Nigel Hart will join the funds, while comanager Ian Jamieson remains with both funds.

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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