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Longleaf Partners Global Closes After Just 3 1/2 Weeks

A PIMCO Ginnie Mae manager departs, Fidelity to merge away two funds, and more Vanguard fund expense ratios come down.

Morningstar Fund Analysts, 01/31/2013

That didn't last long.

Longleaf Partners Global LLGLX, which launched on Jan. 2, closed to new investors on Jan. 28. It wasn't a deluge of money that caused the doors to shut so quickly. Rather, the culprit is the sharp rally in the stock market, according to a spokesman for advisor Southeastern Asset Management. The fund's managers have strict guidelines, only buying companies that feature not only appealing business models and management but which also are selling at a steep discount to their true value in the managers' view. And with the rally taking stock prices up, few such bargains have been available, in their opinion. For that reason, the new fund has 50% of its assets parked in cash, and the managers saw no reason to keep taking in money that would simply add to that cash pile.

The fund has just $30 million in assets, the spokesman said, and the majority of that amount is investments from Southeastern personnel. He said that the fund could have taken in more money but began discouraging investors recently when it became clear that investing the inflows would be difficult.

The version of the Global fund that is sold in Europe and U.S. separate accounts run in that strategy remain open because they have been around longer and thus have had a chance to become much more fully invested when prices were more attractive. In other words, the managers are willing to continue owning stocks that aren't the deepest bargains anymore, but they don't want to make initial investments for the new fund at current market levels.

The Southeastern spokesman said that Longleaf Global is likely to reopen whenever the managers feel that a suitable amount of opportunities meeting their standards becomes available. In the meantime, those shareholders who did get into the fund in the three and a half weeks that it was open can continue to add to their stakes.

More Vanguard Expense Ratios Fall
Vanguard announced a spate of expense reductions in either the Investor or Admiral shares (or both) of eight mutual funds and 11 target-date funds. Most of the fee cuts were in the range of 1 to 3 basis points, affecting funds such as Vanguard Equity-Income VEIRX and Vanguard Morgan Growth VMRAXVanguard Capital Value VCVLX saw the biggest reduction, as its expense ratio fell 11 basis points to 0.47%. The firm also reduced expenses by 1 basis point across its retirement lineup, ranging from Vanguard Target Retirement 2010 VTENX to Vanguard Target Retirement 2055 VFFVX. Two funds saw expense ratios rise 2 basis points each: Vanguard Growth Equity VGEQX and Vanguard Growth & Income VGIAX.

PIMCO GNMA Manager Steps Down
Scott Simon, the lead manager of PIMCO GNMA PAGNX and PIMCO Mortgage-Backed Securities PMRAX, is retiring and has been officially removed as the funds' manager. Simon will serve in an advisory capacity to the funds for an additional few months. Daniel Hyman, who served as Simon's comanager since July 2012, will remain a manager at both funds. PIMCO mortgage specialist Michael Cudzil will join Hyman as a comanager on both funds. A team of more than 30 mortgage- and asset-backed securities analysts will continue to support the funds.

Fidelity Merging Two Funds into Stock Selector All Cap
Fidelity will merge the $19 million Fidelity 130/30 Large Cap FOTTX and $46 million Fidelity Advisor Strategic Growth FTQAX into Fidelity Stock Selector All Cap FDSSX in June, pending shareholder approval.

After launching in mid-2008, Fidelity 130/30 Large Cap underperformed at least two thirds of its large-blend peers in each of the four years from 2009 through 2012. Fidelity Advisor Strategic Growth has fared better, including top-decile returns in the trailing three- and five-year periods. Fidelity's board of trustees has voted in favor of merging both funds' assets into the $3.1 billion Fidelity Stock Selector--which has a middling record over time and carries a Neutral Morningstar Analyst Rating.

Legg Mason Close to Hiring CEO as Buyout Rumors Swirl
News has been swirling around Legg Mason LM in recent days. According to news accounts, the company's board is close to naming its next CEO and is down to four finalists, one of whom is interim CEO Joseph Sullivan.

In addition, Legg Mason has been the subject of ongoing deal speculation, and according to reports, the firm has been approached by some private equity firms about going private. News accounts have indicated that Legg Mason's board has decided to hold off on considering such offers until a new CEO is hired.

However, that hasn't stopped investors from expressing excitement about a possible deal. Last week, shares rallied after a Wall Street analyst wrote that "the odds of some sort of corporate action are increasing," particularly in light of a recent filing by Legg Mason regarding the planned launch of an exchange offer for some privately placed senior notes that were issued in May. Officials from Legg Mason downplayed the exchange offer as required by the private placement and told Reuters that the filing, which included information about recent asset write-downs, was required by the private-placement agreement. The Wall Street analyst was undeterred, writing that the increased disclosure about the asset impairment charges, along with the planned exchange, "certainly leaves us guessing."

Morgan Stanley International Global Franchise Team Adds Manager
The portfolio management team running Morgan Stanley Institutional International Equity MSIQX and Institutional Global Franchise MSFAX recently has undergone two transitions.

On Dec. 31, longtime co-portfolio manager Walter Riddell retired. To add some managerial talent to the team, Morgan Stanley added Marcus Watson to the team on Jan. 29. Watson, a senior associate with Morgan Stanley Investment Management, joined the firm in 2008. The portfolio's other comanagers remain unchanged.

Soft Close for JP Morgan Mid-Cap Offering
JPMorgan Mid Cap Value JAMCX will close to new investors on Feb. 22. The fund's managers have used concerns about capacity constraints to close the fund in the past. In 2005, when assets reached roughly $7 billion, manager Jonathan Simon advocated for the fund's closure. The fund reopened in early 2008 after assets dropped. However, net inflows of $2 billion in 2012 have pushed the fund's asset base to nearly $11 billion as of Jan. 31, making it the second-largest fund in the mid-value category and prompting yet another closing.

Management Team's Departure Sparks Fund Merger at Sentinel
Sentinel Asset Management is merging the $51 million Sentinel Mid Cap II SYVAX into the $101 million Sentinel Mid Cap SNTNX fund. It's a logical move that follows a period of manager turnover at the Mid Cap II fund. In 2011, Sentinel fired Mid Cap II's longtime subadvisor, Steinberg Asset Management. After investors rejected a proposed new subadvisor, Crow Point Partners, Sentinel converted Mid Cap II into a clone of its Mid Cap fund, with the same team managing both offerings. In August 2012, that team moved to Eagle Asset Management, likely prompting the merger of the two mid-cap funds. For now, a team including Sentinel's CEO and the managers behind Sentinel Common Stock SENCX, manage both funds.

Scout Stock Fund Liquidating
Scout Stock UMBSX will liquidate in March. The fund has seen strong outflows during the past decade with assets dropping from $140 million in 2003 to just $60 million as of January. The fund's 6.9% annualized return in the 10 years through Jan. 29 trailed more than two thirds of large-growth peers.

Cook & Bynum Cuts Expense Ratio
The large-blend Cook & Bynum Fund COBYX has cut its expense ratio by 39 basis points to 1.49%. The fund increased its assets from $60 million to $82 million in 2012, despite net outflows of roughly $11 million in 2012's fourth quarter.

Senior fund analysts Greg Carlson, David Kathman, and Gregg Wolper and fund analysts Robert Goldsborough 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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