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At BlackRock, a Host of Equity Manager Changes

Harbor Capital Appreciation gets a new comanager, some Vanguard expense ratios fall, Oppenheimer changes a value manager, Vanguard rotates some bond fund managers, a Lord Abbett small-cap blend manager leaves, and more.

Morningstar Fund Analysts, 02/28/2013

BlackRock continued to revamp its equity mutual fund lineup this week by replacing three management teams, including what was left of a U.S.-based energy and natural-resources group that last year attracted unwanted attention for an apparent conflict of interest.

The asset-management firm said it will replace the U.S.-based team that has run the $784 million BlackRock Energy & Resources SSGRX and $391 million BlackRock All-Cap Energy & Resources BACAX since their inceptions with managers from BlackRock’s London-based energy and natural-resources squad. Robin Batchelor and Poppy Allonby will replace Dennis Walsh and Dan Neumann on the funds on March 11. Walsh has been a member since 1999 of the Boston-based management team that came to BlackRock with its 2004 acquisition of State Street Research & Management. He will leave the firm with Neumann, who became a comanager last year.

For more than a decade, Batchelor and Allonby have run the Bronze-rated BGF New Energy and Silver-rated BGF World Energy funds that are sold in Europe. As of Feb. 26, 2013, both funds had trailed their category averages since inception. New Energy had fallen 3.4% annualized since April 6, 2001, while the average European Alternative Energy fund had slipped less than 1.0%. World Energy had gained 6.9% annualized since then compared with 7.9% for the typical European-based equity energy fund. Since October 2011 Batchelor and Allonby also have been part of the team that runs the still relatively new and unrated BlackRock Commodities Strategies BCSAX, which mixes exposure to commodities futures and commodity-related stocks. It also has trailed its category average--commodities-broad basket--0.82% to 1.32% through Feb. 26, though the fund has beaten the Dow Jones UBS Commodity Index's 1.5% loss.

Last year, the longtime manager of the U.S.-based Energy & Resources and All-Cap Resources funds, Dan Rice, stepped down and eventually left BlackRock after news reports revealed a potential conflict of interest. A natural gas drilling firm that Rice helped start and his sons operated had a joint venture with one of the funds' largest holdings, Alpha Natural Resources ANR; the relationship was not clearly disclosed. Though Rice’s successors, Walsh and Neumann, were veteran members of the funds' management team, the controversy and shakeup raised questions about the fund; its Morningstar Analyst rating dropped to Neutral from Bronze in June 2012. The fund still has a strong long-term record--its 13.5% annualized gain beats the 11.9% of the average equity energy fund and 12.7% rise of the S&P 1500 Energy Index, albeit with more volatility. The fund has struggled in recent years, though, posting losses and lagging its benchmark and more than three fourths of its peers in the trailing one-, three-, and five-year periods through Feb. 26, 2013.   

The unrated BlackRock Mid-Cap Growth Equity BMGAX and Neutral-rated BlackRock Small Cap Growth Equity Portfolio CSGEX also will get new management teams. Lawrence Kemp, who joined BlackRock from UBS late last year to take over BlackRock Capital Appreciation MDFGX, will take over Mid-Cap Growth Equity on March 1 from Eileen Leary and Andrew Leger, who have been listed managers on the fund since 2002 and 2005, respectively. Kemp and comanagers Kathryn Mongelli and Phil Ruvinsky, who also just joined BlackRock from analyst positions at T. Rowe Price and Sureview Capital, respectively, will try to improve the results at the fund, whose trailing one-, three-, five-, 10-, and 15-year relative returns are poor. The managers used to work together on the same growth equity investing team at UBS. Leary and Leger will leave the firm.

BlackRock's San Francisco-based Scientific Active Equity team, which currently runs collective investment trusts, will take over Small Cap Growth Equity from lead manager Andrew Thut and Mid Cap Growth Equity's Leger on May 1. Thut, who had been lead manager since 2008 and a comanager since 2004, will help with the transition but ultimately will leave the firm. This is the second big manager change in six years for this fund, whose trailing one-, three-, and five-year results are all below the category average and Russell 2000 Growth Index. BlackRock's Travis Cooke, who came to the firm with its 2009 acquisition of Barclays Global Investors, will be the fund’s new manager; but the Scientific Equity Team uses a mix of quantitative and fundamental approaches that involves many more people. The fund will remain a growth offering, but it may be more benchmark-conscious and possibly offer a lower expense ratio.

The changes are the latest among many that BlackRock has made to its fundamental equity mutual fund teams. The firm recruited managers from other firms to take over several investment teams and funds in 2012, including BlackRock Capital Appreciation, BlackRock Basic Value MDBAX, BlackRock Emerging Markets MDDCX, BlackRock Flexible Equity BMCAX, and its large-cap equity series.     

Vanguard Rotates Managers, Changes Leaders at Bond Index Group
Vanguard is rotating five members of its investment management team, continuing the firm's practice of periodically revolving key personnel to expand their experience.

Joseph Brennan, who served in Australia as the firm's Asia Pacific CIO since 2009, will return to the United States to lead Vanguard's Equity Index Group. Brennan, who has spent 12 years with Vanguard, will oversee the investment team responsible for more than 80 domestic and international index funds and exchange-traded funds, representing nearly $1 trillion in assets.

Gregory Davis, who has led the firm's Bond Index Group since 2007, will move into the Asia Pacific CIO role. Davis will oversee Vanguard Australia's investment team, which manages offerings available to Australian and Asian investors. Davis has been removed as a comanager from a number of index funds including Vanguard Total Bond Market Index VBTIX and Vanguard Total Bond Market II Index VTBNX.

Josh Barrickman will assume leadership of the firm's Bond Index Group. A 14-year Vanguard veteran, Barrickman will continue to serve as a comanager on fixed-income index funds such as Vanguard Total Bond Market II Index, Vanguard Intermediate-Term Bond Index VBIMX, and Vanguard Short-Term Corporate Bond Index VSTBX. Moving into his new role, Barrickman will become a named comanager on 13 funds, including Vanguard Total Bond Market Index.

John Ameriks will move from managing the firm's Investment Counseling and Research Group to leading the firm's Active Equity Group, which serves as advisor to Vanguard Strategic Equity VSEQX and Vanguard Strategic Small-Cap Equity VSTCX, and manages portions of 10 other funds. Catherine Gordon, who created ICR&R in 2001, will resume leadership of the group.

Lord Abbett Small-Cap Blend Manager Departs
Michael Smith, longtime manager of $700 million Lord Abbett Small-Cap Blend LSBAX (closed to new investors), is no longer with the firm, effective Feb. 21. While the fund's long-term record over Smith's 11-year tenure is decent, the fund has really struggled in recent years and its three- and five-year returns land in the bottom decile as of Feb. 27. Performance concerns were the primary driver behind Smith's departure. In the interim, Lord Abbett's director of domestic-equity portfolio management, Bob Fetch, will take over management of the fund. Fetch has been with Lord Abbett since 1995 and also manages Lord Abbett Fundamental Equity LDFVX and Lord Abbett Mid Cap Stock LAVLX.

Oppenheimer Replaces Value Manager
Oppenheimer has fired Mitch Williams, manager of Oppenheimer Value CGRWX, and John Damian, manager of Oppenheimer Small & Mid Cap Value  QVSCX and head of the firm's value team, in favor of a team from Columbia. As of March 11, Laton Spahr will be the new lead manager of the two funds as well as on Oppenheimer Select Value OSVAX, which Williams and Damian managed together, and Oppenheimer Equity OEQAX, where Damian was comanager. Spahr joined Columbia in 2010 when the firm merged with the RiverSource funds, where he had been since 2002. He is a listed comanager on six Columbia funds, most notably the $5.3 billion Dividend Opportunity INUTX and the $3 billion Diversified Equity Income INDZX. The other comanagers of those funds will remain at Columbia, but Spahr is bringing three other people with him to Oppenheimer: Eric Hewitt, who will be comanager of Oppenheimer Small & Mid-Cap Value, and research analysts Kyle Bergacker and Daniel Hozian. The team will work out of Oppenheimer's Denver office starting March 11; until then, Mike Levine of Oppenheimer Equity Income OAEIX will manage the funds on an interim basis, and John Damian will stay around to help with the transition.

Oppenheimer Value and Small & Mid-Cap Value are both former standout funds that had fallen on hard times recently. Damian had managed Small & Mid-Cap Value since 2001, putting together six years of great results before falling hard in the 2008 bear market; the fund has now trailed its category in four of the past five years, and its asset base has shrunk dramatically. The Value fund had a great track record in eight years under former manager Chris Leavy (now at BlackRock), but its record has been more mixed since Williams took over at the beginning of 2009. Both funds have Morningstar Analyst Ratings of Neutral, though those ratings will be going under review as we evaluate the changes.

Management Changes at Two Invesco Funds
Invesco announced changes to the management team at Invesco Energy IENAX and Invesco Gold & Precious Metals IGDAX. Former lead manager Andrew Lees has left the firm and Tyler Dann, a listed manager on Invesco Energy, will focus on other U.S. equity funds. 

Norman MacDonald will take over management responsibilities for both funds. MacDonald has earned a respectable track record during his five-year tenure as manager of Invesco's Canadian-domiciled Trimark Energy Class and Trimark Resources funds. He will apply the same process to the U.S. funds, searching for companies with low price multiples and production growth.

Vanguard Updates Expense Ratios, Reports More Reductions Than Rises
In February, fees dropped at six Vanguard funds while edging higher at three funds. Vanguard Selected Value VASVX saw the biggest reduction as its expense ratio fell to 0.38% from 0.45%. Vanguard High Dividend Yield Index VHDYX cut its expense ratio by 5 basis points to 0.20% while the ETF Vanguard High Dividend Yield Index VYM cut expenses by 3 basis points to 0.10%. Fees also declined by 1 to 2 basis points at Vanguard Explorer VEXRX, Vanguard Diversified Equity  VDEQX, and Vanguard Tax-Exempt Money Market.

Expense ratios rose by 1 basis point at Vanguard Mid Cap Growth VMGRX and Vanguard International Explorer VINEX. Vanguard Emerging Markets Select StocVMMSX saw its expense ratio move 3 basis points higher to 0.92%.

Harbor Capital Appreciation Gains Comanager
Harbor Funds has named Kathleen McCarragher comanager of Gold-rated Harbor Capital Appreciation HCAIX, alongside Sig Segalas, effective March 1. Segalas remains the lead portfolio manager for the fund and will retain final authority over all aspects of the fund's investment portfolio, including purchases and sales of individual securities and portfolio construction, and McCarragher’s addition as comanager will not affect how subadvisor Jennison Associates manages the fund. McCarragher joined Jennison as a portfolio manager in 1998 and has been a director of the firm since 2007 and has been the head of growth equity at Jennison since 2003.

Associate director of fund analysis Dan Culloton, senior fund analyst David Kathman, and fund analysts Michelle Canavan, Robert Goldsborough, Flynn Murphy, and Kathryn Spica 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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