Fund Times: Vanguard to Release New Dividend Index Fund

Vanguard is joining the dividend bandwagon with the launch of Vanguard Dividend Achievers Index Fund. Vanguard's quantitative equity group, which also helps manage  Vanguard Strategic Equity (VSEQX),  Vanguard Energy (VGENX), and  Vanguard Explorer (VEXPX), among others, will run the new offering. The fund will mimic the Mergent Dividend Achievers Select Index, which is composed of about 300 companies that have a history of raising their dividends. Vanguard joins a large and growing list of firms that have released new funds, such as AIM Diversified Dividend (LCEIX) and Ave Maria Rising Dividend (AVEDX), with dividend target mandates.

Additionally, Vanguard is replacing John Levin & Co. as subadvisor on the multimanager  Vanguard Equity-Income Fund (VEIPX). Existing advisors Wellington and Vanguard's quantitative equity group will assume the 20% portion that Levin previously managed. John Levin has experienced some internal struggles lately, which may have prompted this move. Though this change bears monitoring, we expect the fund to weather the transition fairly well.

Fidelity Manager Merry-Go-Round Continues
J. Fergus Shiel is returning to Fidelity to run Fidelity Advisor Dynamic Capital Appreciation  beginning Sept. 30, 2005. He replaces the inconsistent John Porter as manager. Shiel rejoins Fidelity after a two-year stint running his own investment firm. He first came to Fidelity in 1989 as an equity analyst and has managed a number of Fidelity Select portfolios. Porter meanwhile has replaced Bettina Doulton as portfolio manager for  Fidelity Advisor Growth Opportunities (FAGAX).

Elsewhere, Andrew Burzumato has been replaced by Douglas Simmons as portfolio manager for  Fidelity Utilities (FIUIX). Simmons will still run Fidelity Select Environmental (FSLEX), which he has managed since 2004. We had hoped that the recent initiative to put Fidelity analysts on more of a career path would slow turnover at the sector funds, but that has not been the case thus far.

More Morgan Stanley Shuffling
Mitchell M. Merin, former president and chief operating officer of Morgan Stanley Investment Management (MSIM) has left the firm. Merin had been with the firm for more than 20 years, originally with Sears before becoming a senior vice president at Dean Witter in 1986. He led MSIM for the past seven years. Merin's job is being split in two, at least temporarily; Owen Thomas, current head of Morgan Stanley's real estate business, will reign as president of MSIM, and Ronald E. Robison will serve as interim president of funds.

The recent management turmoil speaks to the unsettled nature of the firm as a whole since parent-company chief executive Philip Purcell left in June. The turmoil has had an unpleasant ripple effect through all of Morgan Stanley's business units, MSIM included. MSIM did not have a unified culture to begin with, and Merin's sudden retirement only worsens the problem.

Unfortunately, these kinds of distractions take the focus away from fund shareholders. There have been too many changes to management teams, and the research structure at MSIM in recent years and a new president will likely only fuel further change. 
 
Seligman Can't Escape the Long Arm of the Law
On Sept. 21, 2005, J. & W. Seligman revealed that it had received a so-called "Wells notice" from the SEC. The notice indicated that rather than moving forward under the terms of a tentative financial settlement over Seligman's market-timing issues, the commission may instead pursue formal action against the firm.

This action follows Seligman's lawsuit against New York Attorney General Eliot Spitzer, which alleges that Spitzer overstepped his legal jurisdiction in investigating market-timing at the firm. Seligman's stance is that in investigating advisory fees and how they're negotiated, the New York Attorney General (NYAG) is impinging on the SEC's territory.

Some might view the Wells notice as an unexpected setback for the firm, but that's not exactly the case. Seligman says it had reached a tentative settlement with the SEC and Spitzer in mid-August, but then the NYAG went one step further than Seligman was willing to go. Seligman's president, Brian Zino, says that when the firm's senior management met to decide how to respond, it was clear to them that if they filed suit against the NYAG there were any number of possible reactions from the SEC and the NYAG. Nevertheless, the firm was unwilling to grant the NYAG jurisdiction over its fees in perpetuity.

Etc.
Quantitative Emerging Markets Fund   is looking for a big raise. In a Sept. 20 filing, the board of directors recommended that the manager, Quantitative Group, receive a 25% raise for managing the Emerging Markets fund stating that "the low fee currently charged by the manager is insufficient to cover the costs of providing services to the Fund while continuing to provide quality services to shareholders." Pushing the fees up would increase the management fees alone from 0.80% to 1%. While that is a fairly typical range for the diversified emerging-markets category, the fund's total expense ratio is exorbitant. At present, the ordinary no-load share class charges a combined 1.96%, which is much higher than its average no-load rival's 1.4%. Pushing expenses up will only make the fund less competitive. Shareholders should vote no.

Calvert Asset Management replaced subadvisor Brown Capital Management with New Amsterdam Partners, led by Michelle Clayman, on the socially conscious mid-growth fund  Calvert Capital Accumulation (CCAFX). Under Brown's watch, the fund trailed nearly 75% of its rivals. We applaud the move, as New Amsterdam has skillfully used a valuation-conscious growth strategy to lead several separate accounts to good results. However, the fund's high 1.74% expense ratio still means we would avoid the fund until fees are lowered.