Fund Times: Fidelity Lowers Initial Hurdle

Fidelity is dropping the minimum investment amount for  U.S. Bond Index . Investors previously had to pony up $100,000 to gain access to this fund, thus putting it out of reach for all but the most well-heeled investors. But beginning Sept. 1, 2005, the fund's initial investment will be lowered to $10,000, placing it within spitting distance of rival index funds, such as  Vanguard Total Bond Market Index (VBMFX). Vanguard's offering still carries a lower minimum requirement of just $3,000, although there are additional account maintenance fees for accounts of less than $10,000. Also, five Fidelity Spartan municipal money market funds will lower their minimum investments to $25,000 from $100,000. And finally, three taxable money market funds will raise their minimum investments to $25,000 from $20,000, to establish consistency across funds.

In another move aimed to make U.S. Bond Index more competitive, Fidelity is contractually capping its expenses at 0.32%. That expense ratio is half that of the fund's typical no-load, intermediate-term bond rival. However, it is only average when compared with similar broad market index funds, which typically charge 0.33%.

Value Manager Heads to Wellington
Peter Higgins, skipper of  Dreyfus Small Company Value (DSCVX) and  Dreyfus Midcap Value (DMCVX), left his longtime advisor and Dreyfus affiliate The Boston Company to take a post at Wellington Asset Management. Higgins had an aggressive and somewhat flexible approach to value investing, routinely wading into growth areas of the market often ignored by traditional value hounds. That strategy flew in the face of benchmarks and delivered uneven performance, especially in the volatile arena of small caps. Higgins' flamboyant style achieved decent success with mid-cap stocks, though. It's no surprise then that he is to focus exclusively on mid- to large-cap stocks at Wellington.

Meanwhile David Daglio, Higgins' comanager of three years, has assumed full control of both Dreyfus funds. While he plans to practice the same basic stock-picking approach as his predecessor, Daglio intends to rein in the risk profile of both portfolios by keeping a tighter lid on sector bets.

Great Timing
An initial prospectus was filed for PowerShares Zacks Micro Cap Portfolio  this week. The ETF will try to match returns of the Zacks Micro Cap Index--a semiactive index made up of about 400 U.S. stocks whose companies will change based on the ratings that Zacks' analysts assign to the underlying stocks. The stocks in the index have market capitalizations that range from about $58 million to $575 million. PowerShares is capping the ETF's expenses at 0.60%, which is more expensive than the typical small-cap index fund's 0.23% levy.

In all, this ETF may be a sensible part of a well-diversified long-term portfolio, but we are wary about the timing of its release. Small-cap stocks have enjoyed tremendous growth over the past five years, outperforming most other domestic categories. As such, investors should temper their future expectations and not expect the same phenomenon going forward.

Etc.
Fund shareholders have one less advocate. According to a Reuters news item, the Investment Company Institute (ICI) admitted that it no longer represents fund shareholders. Instead, it represents fund companies, fund boards, and the people who manage mutual fund assets. We have long thought of the Institute as a representative of the industry, as some of its recent stances suggest. For example, it spoke out against the shareholder-friendly move for independent chairs. If it will no longer represent shareholders, we think that fund companies should stop paying their ICI dues with fundholders' money.

The well-respected group behind the Matthews Asian fund series is launching a new fund: Matthews India Fund MINDX. As its name implies, the fund will invest in stocks, preferred stocks, and convertible securities of companies domiciled in the Indian Subcontinent. Traditionally, Matthews looks for companies with strong earnings growth that trade at attractive valuations. The fund will be directed by Andrew Foster, who joined two other Matthews' funds only earlier this year as comanager but who has considerable experience at the firm; and by Mark Headley, a seasoned Matthews hand. The fund is expected to cost 2%, which is pricey for a no-load Pacific /Asia ex-Japan offering. That said, Matthews historically has done a good job of lowering fees as its funds gather assets. Our one beef here is the timing of the rollout, which follows a period of strong performance by Indian stocks.

Chicago-based ICAP Funds is consolidating its lineup by merging  ICAP Discretionary Equity  and  ICAP Equity . Investors should not be too worried by this merger as it will have little impact on the look of the portfolio. Discretionary Equity, a closed fund, rarely used its flexible-asset allocation mandate and it is essentially a clone of the Equity fund. Its low expenses and experienced management team led by Rob Lyon make the fund a good choice in the large-value category. However, we would recommend that investors take a longer look at the more concentrated  ICAP Select Equity --we believe that Lyon is one of the few managers who can skillfully run a smaller, less-diversified portfolio.

Daedalus Capital hopes to capitalize on other growth managers' quick-trading strategies by launching a new growth fund. The Chicken Little Growth Fund will utilize a growth-at-a-reasonable price (GARP) approach by buying and holding undervalued growth stocks for three years or more, avoiding short-term plays like many of its contemporaries. Manager Stephen M. Coleman, who has years of experience working as a venture capitalist and investment advisor, will use a "go-anywhere" bottom-up and top-down approach to stock-picking. However, with an ironically high turnover rate of 100% and an extremely high expense ratio of 3%, we would urge investors to think about whether or not "the sky is falling" on potential returns.