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American Funds Adds Advisor, Shuffles Managers

Meridian shareholders vote for advisor, KKR launches funds, Hancock names a new CEO, and more. 

Morningstar Fund Analysts, 07/19/2012

Capital Research & Management, the parent firm of the American Funds, is adding its institutional investment division as an advisor on its equity offerings. The division, known as Capital Guardian, also runs institutional and variable annuity accounts. Capital Guardian will join existing advisors Capital World Investors and Capital Research Global Investors. CRM has a unique structure in that its equity divisions operate as separate subsidiaries that are independent of one another. American first split its equity team along retail and institutional lines in 2002. One team went on to manage the firm's institutional accounts, while the other focused on the retail American Funds. This helped the firm maintain relatively small working groups as assets grew and prevented the firm from exceeding regulatory limits on individual holding sizes. In 2008, CRM further divided the retail investment team into CWI and CRGI.

As part of this change, four portfolio managers--Rob Lovelace, Dylan Yolles, Will Robbins, and Noriko Chen--will move to the institutional division, but they will continue managing assets on their existing mutual funds. This is especially notable for Lovelace, who is a long-tenured manager on American Funds EuroPacific Growth AEPGX. As a result, funds such as EuroPacific Growth will now have managers from all three of American's equity divisions. The four managers will also start running portfolios for the firm's insurance series. Further, two equity portfolio managers, Alan Wilson and Mark Hickey, will move to CWI and CRGI from Capital Guardian. They will likely be added as managers to one or more funds in the coming months. Adding the institutional equity division to the mix somewhat blurs the distinction between the institutional and retail investment teams at Capital Group.

Meridian Shareholders Vote to Keep Advisor
The shareholders of Meridian Value MVALX, Meridian Growth MERDX, and Meridian Equity Income MEIFX have approved a one-year contract for their longtime advisor, Aster Investment Management. The vote closes one more chapter in what has been a period of transition at the firm. Rick Aster, AIM's founder and the driving force behind the Meridian funds, died in early 2012. In the wake of Aster's death, the funds' board terminated AIM's existing contract and then rehired it on a temporary basis pending the shareholder vote. That allowed the funds' managers to remain in place during the transition, and now the vote will keep them in place for another year. To shore up its management ranks, AIM also rehired two previous Meridian Value managers. Larry Cordisco had stepped down from the Value fund in 2011 to work as a consultant on technology startups. He will help run Meridian Growth, along with comanager William Tao, who worked closely with Aster on the fund for five years, and Jamie England, the current lead manager on Meridian Value who was pegged to help run Growth in the wake of Aster's death. Kevin O'Boyle generated strong results at Meridian Value between 1995 and 2004 before leaving to run his own fund. O'Boyle will serve as the firm's temporary director of research.

While the vote somewhat stabilizes an unstable situation, there are still developments investors should monitor. The three Meridian funds have seen almost $300 million exit, or about 10% of assets, which is a reasonable amount given the situation. Outflows can force managers to sell stocks at inopportune times. In this case, though, the Meridian funds are trafficking in liquid large- and mid-cap names that are easier to buy and sell. Another area to watch: how Aster's ownership stake will be cashed out. It is unclear if new owners would make drastic changes to the management or the funds' individual strategies.  

Hancock Funds Names New CEO
When John Hancock Funds' chief executive officer, Keith Hartstein, announced earlier this year he would retire on Sept. 30, 2012, the company didn't have to look far for a replacement. Following an internal search, Hancock named Andrew Arnott as its next CEO. Arnott, who joined Hancock in 1993, has served as the firm's chief operating officer and most recently led its Investment Management Services group, which is tasked with performing due diligence on Hancock subadvisors and its internal managers. Arnott has also played a key role in positioning the firm's broader fund lineup.

Hartford Manager Steps Down
Frank Ossino has stepped down as a comanager on Hartford Floating Rate HFLAX and has left subadvisor Wellington Management. Comanager Michael Bacevich remains on the fund. Earlier this year, Hartford veterans Ossino and Bacevich moved to Wellington after their employer shifted fixed-income management responsibilities away from in-house teams. Hartford wanted to consolidate the subadvisor role around Wellington because that firm was already the primary subadvisor for many Hartford equity funds. Hartford's fixed-income staffers continue to run client assets in accounts outside retail mutual funds. Wellington says it will eventually replace Ossino.

Oppenheimer Buys MLP Shop
OppenheimerFunds is purchasing SteelPath Capital Management and SteelPath Fund Advisors, the Dallas, Texas-based entities behind a lineup of funds that invest in master limited partnerships. Terms of the deal weren't disclosed.

MLPs are publicly traded partnerships that typically focus on energy infrastructure, like pipelines. MLPs are like REITs in that they're required to return a large portion of their profits to shareholders. That leads to above-average yields, which have attracted income-searching investors. Indeed, 11 domestic MLP funds have been launched the past two years, including five SteelPath funds that have 6%-plus yields. The SteelPath funds have also attracted more than $2 billion in assets as performance has been strong.

USAA Manager to Retire
Didi Weinblatt has retired from her job as a portfolio manager at USAA. Weinblatt ran USAA Government Securities USGNX and USAA Income USAIX for more than a decade. Donna Baggerly, who ran USAA Government Securities before Weinblatt, will become the lead manager once again. Baggerly most recently ran $25 billion in insurance portfolios that followed similar mandates to the one in place at Government Securities. Matt Freund, who heads up USAA's investment management group, and Julianne Bass will take over USAA Income. The duo has comanaged several funds since 2007, including Bronze-rated USAA Short-Term Bond USSBX, USAA Intermediate-Term Bond USIBX, and USAA High Income USHYX.

Etc.
KKR filed to launch KKR Alternative High Yield and KKR Alternative Corporate Opportunity funds. Both will primarily invest in a range of fixed-income securities. 

Guy Holbrook was removed as a comanager at Columbia CMG Ultra Short Term Bond CMGUX. The fund added Leonard Aplet as a comanager and will retain current comanager Mary Werler.

Andrew Wheatley-Hubbard was added as a comanager to BlackRock Global Dividend Income BIBDX, joining current managers Richard Turnill and Stuart Reeve. Wheatley-Hubbard joined BlackRock in 2007 and previously served as an industrials analyst.

Scout Funds filed to launch the Scout Emerging Markets Fund in September 2012. The fund's lead manager will be Mark Weber, who also comanages Scout International Discovery UMBDX.

DWS Clean Technology WRMAX will be liquidated in October 2012. The fund has delivered a negative 12.9% annualized return since its September 2007 inception.

Columbia added Rahul Narang as a comanager to Columbia Technology CTCAX. Lead manager Wayne Collette remains with the fund.

BlackRock is planning to launch a U.S. real estate securities fund in late 2012. The fund will be comanaged by Mark Howard-Johnson, who spent more than a decade comanaging Goldman Sachs Real Estate GREAX, and Sherry Rexroad, who spent nearly a decade comanaging ING Real Estate CRARX.

TIAA-CREF filed to launch the Social Choice Bond Fund. The fund will be comanaged by Joseph Higgins and Steven Raab of TIAA-CREF Bond TIBDX and Stephen Liberatore of TIAA-CREF Tax-Exempt Bond TITIX.

Mutual fund analysts Shannon Kirwin, Kevin McDevitt, Flynn Murphy, 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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