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Vanguard Set to Launch Short-Term TIPS Fund

FPA manager steps down, Invesco drops Van Kampen name, and more. 

Morningstar Fund Analysts, 07/26/2012

Vanguard filed this week to launch a short-term inflation-protected securities index fund. The fund will track the Barclays U.S. Treasury Inflation-Protected Securities 0-5 Year Index. This new fund will complement Vanguard's other TIPS fund, Vanguard Inflation-Protected Securities VIPSX, which was launched in mid-2000. Unlike the new fund, Inflation-Protected Securities is actively managed, albeit with tight tracking to the Barclays U.S. Treasury Inflation Protected Index. The biggest difference will be that the older sibling has a duration (a measure of interest-rate sensitivity) of 8.6 years as of June 2012, while the new fund's duration will be closer to 2.5 years. That means the short-term fund will be less sensitive to interest-rate fluctuations. To read more about the relationship between TIPS and interest rates, click here.

According to a Vanguard source, in preparing to launch the fund the firm took a close look at how short-term TIPS respond to changes in inflation and interest rates. The firm found that short-term TIPS do provide inflation protection across all market environments, but with less sensitivity to real interest-rate changes than longer-term TIPS. The firm considered data from the U.S. TIPS market as well as foreign inflation-protected securities markets that have longer histories. Even though real yields on short-term TIPS are currently negative, Vanguard believes short-term TIPS have an enduring investment case for some investors. To read Morningstar's take on why investors are buying TIPS with negative real yields, click here.

This isn't the only short-term TIPS fund available, but it will now be the cheapest. Both iShares and PIMCO offer short-term TIPS ETFs charging 0.20%. The new Vanguard fund will charge 0.20% for the Investor shares and 0.10% for the Admiral and ETF shares. The minimum initial investment for the Investor and Admiral shares will be $3,000 and $10,000, respectively. Vanguard has an ETF in registration for its existing TIPS fund.

FPA Manager Steps Down
Eric Bokota has stepped down from his comanager role at FPA International Value FPIVX and has resigned from First Pacific Advisors. The departure comes as a surprise. Bokota and comanager Pierre O. Py joined FPA together after long careers as analysts at Oakmark. They were tasked in 2011 with launching International Value, FPA's first new fund in 25 years. The news is a blow, but FPA announced Py will remain on the offering and become its lead manager. Despite his exit, Bokota says he will keep his own money in the fund.

Manager Changes at Fidelity
John Harris has stepped down as the manager of Fidelity Select Consumer Discretionary FSCPX and has resigned from the firm. Harris' departure is surprising. He had been on this fund for five years, a long tenure for Fidelity's sector offerings. He had guided Consumer Discretionary to a top-third showing over the trailing five-year period and was also responsible for consumer cyclical sleeves at some diversified offerings. His successor is Gordon Scott, who has been an analyst at the firm since 2005.

Fidelity also announced Sean Gavin has stepped down from his comanager role at Fidelity Select Air Transportation FSAIX and Fidelity Select Transportation FSRFX. In addition, Vincent Montemaggiore has stepped down from his duties at Fidelity Select Banking FSRBX. These moves, however, were expected; Gavin was recently promoted to run Fidelity Value Discovery FVDFX, and Montemaggiore was tasked with helming Fidelity Overseas FOSFX.

Lord Abbett Alters Fund's Strategy
Lord Abbett Capital Structure LAMAX is getting a new name and mandate. The $1 billion fund, which currently falls in the aggressive allocation category, will now focus on large- and mid-cap dividend-paying stocks. It will be renamed Lord Abbett Calibrated Dividend Growth, one in a series of offerings at the firm that combines quantitative research with fundamental stock analysis. It will be managed by Walter Prahl and Rick Ruvkun. Prahl is the firm's director of quantitative research. Ruvkun oversees Lord Abbett's large- and mid-cap equity funds.

Invesco Drops Van Kampen Name
Invesco announced it will cease using the Van Kampen name on its funds. For example, Invesco Van Kampen Equity & Income and Invesco Van Kampen Comstock will become Invesco Equity & Income ACEIX and Invesco Comstock ACSTX effective Sept. 24, 2012. This move follows the 2010 purchase of Van Kampen by Invesco. Since then, Invesco has been consolidating the two lineups.

It's (Not) All in a Name
Peregrine Capital Management is working to assuage investor concerns after a futures-trading firm with a similar-sounding name went bankrupt. Minneapolis-based Peregrine Capital Management is a wholly owned subsidiary of Wells Fargo WFC and is one of the subadvisors for the Wells Fargo Advantage Small Companies Growth WFSAX and Wells Fargo Advantage Small Companies Value SCVAX funds. Peregrine Capital Management has no ties to the firm that went under.

Northern Cross Bolsters Analyst Team
Northern Cross, which subadvises Harbor International HIINX, has hired Hai Gao as a senior analyst. Gao previously covered consumer durables, consumer staples, and technology stocks for Institutional Capital, but he will be a generalist at Northern Cross. Gao's hiring is a slight break from tradition in that he comes from the buy-side rather than the sell-side. The team's only other analyst, Scott Babka, who has been promoted to director of research, came from Morgan Stanley MS in early 2010. Comanagers Howard Appleby and Jean-Francois Ducrest also worked on the sell-side before being hired by Northern Cross.

James Callinan, who was Morningstar's Domestic Stock Manager of the Year in 1999, will retire from RS Invesments in September 2012. Callinan is a comanager of Columbia Active Portfolios Multi-Manager Small Cap Equity CSCEX.

MassMutual has plans to launch three new passively managed funds: MassMutual S&P Mid Cap Index, MassMutual Russell 2000 Small Cap Index, and MassMutual MSCI EAFE International Index.

Ajay Diwan is joining the management team at Columbia Seligman Communications & Information SLMCX. Diwan joins long-time managers Paul Wick, Richard Parower, Vishal Saluja, and Sushil Wagle. Diwan joined Seligman in 2001.

Dreyfus filed to launch a fund tracking the MSCI ACWI Ex-U.S. Index. According to the filing, the fees will be 40 basis points for the institutional share class and 65 basis points for the investor class. Thomas J. Durante, Karen Q. Wong, and Richard A. Brown of affiliate Mellon Capital will be responsible for managing the fund.

Alexander Budny III and Charles Trafton will be added as comanagers at BNY Mellon Small/Mid Cap MMCIX effective Aug. 20, 2012, joining lead manager John Truschel.

Nate Pearson was added as a portfolio manager on Dreyfus Inflation Adjusted Securities DIAVX. He'll join comanagers Robert Bayston and David Horsfall. Horsfall was also added to Dreyfus Quality Bond fund, joining David Bowser.

Thu Ha Chow, senior credit analyst, joined the portfolio management team for the Aberdeen Asia Bond fund AEEAX. She most recently served as a senior portfolio manager on the European investment-grade team.

Prudential Government Income PGVAX is increasing its allowable allocation to zero-coupon bonds to 25% of assets from 15%.

CRM Small/Mid Cap Value CRIAX added Jonathan Ruch as a comanager. CRM Mid Cap Value CRISX added Robert Rewey III as a comanager.

Mutual fund analysts David Falkof, 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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