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Fairholme Reopens to New Investors

Plus, AllianceBernstein to buy W.P. Stewart, FPA Paramount alters its focus, Fidelity to roll out a short-duration high-yield fund, PIMCO plans for a managed-futures fund, and a sad farewell to retired T. Rowe Price manager and 1995 Fund Manager of the Year Jack Laporte.

Morningstar Fund Analysts, 08/22/2013

On Aug. 15, 2013, Fairholme announced that it has reopened the $7.9 billion, Silver-rated Fairholme Fund FAIRX to new investors, effective as of this past Monday.

In a release, the fund's advisor, Fairholme Capital Management, noted that the fund's board had decided to reopen the ultraconcentrated fund "based on the expectation that given the fund's current holdings, investment opportunities, and liquidity, inflows from new investors can be invested in a manner that is consistent with" Fairholme Fund's investment objective and strategies. The fund had seen investors pull out $10 billion in assets in 2011 and 2012, requiring manager Bruce Berkowitz to sell positions during those years that he would have preferred to keep. As a result, the firm announced early in the year that it would close at the end of February 2013 as a way to reduce the risk of hot inflows and stabilize its shareholder base. The closing also was aimed at preventing current positions from being diluted by potential inflows; diversification guidelines prevent the fund from adding to positions greater than 5%.

American International Group AIG remains far and away Berkowitz's largest holding in the fund, soaking up about half of the fund's assets. Other big holdings include Bank of America BAC and Sears Holdings SHLD, and Berkowitz recently initiated positions in Hartford Financial Services HIG and Lincoln National LNC. Also, Berkowitz revealed in June that he holds positions in Fannie Mae and Freddie Mac. In a recent interview with The Wall Street Journal, Berkowitz reaffirmed his conviction in the two government-controlled mortgage giants, calling them "a huge part of the American dream" whose shares he believes are undervalued.

Outflows have continued this year at the Fairholme Fund, to the tune of about $90 million per month. And given past outflows, the fund's reopening is no guarantee that inflows will resume.

AllianceBernstein Acquires Boutique Investment Management Firm
AllianceBernstein AB announced on Aug. 15 that it will acquire W.P. Stewart, an equity investment manager based in New York with roughly $2 billion in assets. The $60-million deal to acquire the firm, which focuses on concentrated growth equity strategies, is expected to close in four to six months. W.P. Stewart was founded in 1975 and launched a mutual fund of its flagship strategy in 1994, W.P. Stewart & Co. Growth Fund WPSGX. The $22 million fund has posted strong long-term results, and its three-, five- and 10-year trailing returns through July 31 land in the best-third of the large-growth category.

According to the press release, the acquisition will not result in any changes to W.P. Stewart's team or process, but it will enable the firm to leverage AllianceBernstein's research and global presence. The firm's founding partner, William Stewart, plans to retire from the firm at the close of the transaction.

AllianceBernstein's equity business has experienced sharp outflows amid performance struggles across the firm's equity funds during the past several years. The firm peaked at $837 billion in assets under management in 2007 and has since shrunk to $444 billion. Peter Kraus, AllianceBerstein's CEO, has focused on diversifying the firm's investment services since joining five years ago, and this acquisition may serve to further that goal.

FPA Paramount Becomes Part of Firm's New Global Value Strategy
On Monday, FPA announced that as of Sept. 1 it will transition the investment strategy of Silver-rated FPA Paramount FPRAX from its current small- and mid-cap developed-markets focus to an all-cap focus.

The $323 million fund will see a change both in management and strategy. Going forward, the fund no longer will have a small- and mid-cap developed-markets equity mandate. Instead, the fund will shift to an all-cap, global mandate, holding companies based both in developed and emerging markets. The new strategy also will focus more on value, with FPA Paramount's managers using bottom-up stock analysis and paying close attention to downside protection.

In a release, FPA noted that current positions in FPA Paramount will be sized down or sold over time. Two existing managers on the fund, Gregory Herr and Pierre Py, will oversee the new global value strategy. The fund's other two managers, Steven Geist and Eric Ende, will step down from FPA Paramount on Aug. 31.

Fidelity Launching Short-Duration, High-Yield Fund
Fidelity has filed paperwork with the SEC to launch the Fidelity Short Duration High Income fund, which will be designed to provide higher yields with lower interest-rate sensitivity. The fund will seek to keep an average duration--a measure of the fund's interest-rate sensitivity--of less than three years. Relative to the broader short duration, high-yield market, the fund will focus on higher-quality bonds--primarily those rated BB or B, with a significant underweighting to bonds rated CCC or lower. The fund also will invest a smaller slug of the fund's assets in floating-rate securities and investment-grade corporate bonds.

Matt Conti, who heads Fidelity's well-regarded leveraged-finance group, will serve as the fund's lead manager. Conti also manages Fidelity Focused High Income FHIFX, a portfolio dedicated to the higher-quality end of the junk-bond sector. Michael Plage, who comanages Fidelity Advisor Corporate Bond FCBAX, will manage the new fund's corporate-bond sleeve. The fund is expected to launch later this year.

PIMCO Looks to Launch Managed-Futures Fund
PIMCO is looking to build out its lineup of alternatives funds, and the firm has filed to launch a managed-futures fund. The PIMCO Trends Managed Futures Strategy fund will use quantitative strategies to invest in derivatives linked to interest rates, currencies, mortgages, credit, commodities, equity indexes, and volatility-related instruments, according to a preliminary prospectus. The firm hasn't named the fund's manager or listed the fund's expense ratio, but retail investors will be able to access it for a minimum of just $1,000.

Former Morningstar Fund Manager of the Year Jack Laporte Dies
On Aug. 12, former T. Rowe Price New Horizons PRNHX manager John H. "Jack" Laporte died at his Ruxton, Md., home. The cause was complications from lymphoma. He was 68.

Morningstar named Laporte its Domestic-Stock Fund Manager of the Year in 1995 after New Horizons increased 55% compared with the Russell 2000 Index's 30% gain. 

A Princeton University graduate who then earned an MBA from Harvard, Laporte joined T. Rowe in 1976 and managed New Horizons from 1987 until 2010, overseeing the small-cap fund's buy-and-hold strategy during a period when its assets went up fivefold. At the time of his retirement, New Horizons had handily beaten the returns of its small-cap-growth peers over the three-, five-, and 10-year trailing periods. Laporte stepped down from New Horizons in February 2010 but had remained with the firm in a mentoring role until retiring this past December.

Fund analysts Michelle Canavan, 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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