Fund Times: PIMCO Predicts U.S. Slowdown

PIMCO's Paul McCulley, one of the firm's top gurus, has posited that the U.S. economy will slow in the coming year. Among other facets, PIMCO is concerned over a slowdown in the housing market, which affects the average consumer's ability to tap into their house's appreciated value: "a slowdown in home price appreciation will have a bigger impact on the household’s ability to withdraw equity than the consensus probably thinks." And "therefore (is) a key element in the slowdown in consumer expenditures that we anticipate." The good news is that McCulley isn't all doom and gloom, and in fact doesn't see a slower U.S. economy as a "destination" but more as a "direction": "We still expect the United States to be the bastion of growth and to have the tightest monetary policy in absolute terms going forward, but the differentials between U.S. growth and policy rates and global growth and policy rates should narrow." For the full report click here.

New Fidelity Index Funds
Fidelity is coming out with three U.S. Treasury Index Funds: Spartan ShortTerm Treasury Bond Index, Spartan Intermediate Treasury Bond Index, and Spartan LongTerm Treasury Bond Index. Each fund will contractually cap expenses at 10 basis points, provided that investors have a minimum of $100,000 in the funds. If not, expenses will be 20 basis points. (Even at that mark these funds will be less expensive than typical no-load government-bond funds.) Moreover, these new offerings will be fairly unique in their respective categories. There are presently no short- or long-term U.S. Treasury index funds, and there are only a handful of intermediate-term options (from Columbia and Northern). For more information on these funds, see the press release on Fidelity's Web site.

Vanguard's Windsor II Gets More Brain Power
On Jan. 4, 2006, Vanguard added advisor Armstrong Shaw Associates to $41.4 billion  Vanguard Windsor II (VWNFX). Armstrong Shaw joins existing advisors Barrow, Hanley, Mewhinney & Strauss, Equinox Capital Management, Hotchkis and Wiley Capital Management, Tukman Capital Management, and Vanguard. Armstrong Shaw has a good record running large-value separate accounts, and also has done a nice job at  Harbor Large Cap Value (HAVLX). Manager Jeffrey Shaw will be responsible for Armstrong Shaw's portion of the Windsor II Fund. In general, we think that Armstrong Shaw's brand of disciplined, low-turnover value investing should fit in well at Windsor II.

Top Small-Cap Fund Is Reopening
 Schneider Small Cap Value  is reopening on January 17 after closing to new investors in 2002. Schneider hasn't set the exact parameters of how long it will stay open, but a spokesperson said it would likely be "after they get tens of millions of new assets rather than hundreds of millions." The fund currently has $55 million in assets, and will require a $20,000 minimum investment.

The fund is reopening because the separate account version of the same fund has experienced outflows in the past few years as institutional clients rebalanced their portfolios. Manager Arnie Schneider also says that he doesn't have a shortage of ideas right now, so the fund should have no trouble putting additional assets to work. However, potential investors should keep their expectations in check because small-cap value stocks have been on a tear since 2000.

Rydex Funds Merge
Investors with strong stomachs should take note of the proposed combination of Rydex SPhinX Fund, a closed-end fund of hedge funds, and open-end retail fund, Rydex Absolute Return Strategies (RYMQX). The new open-end entity, also named Rydex Absolute Return Strategies, will engage in market neutral, equity long/short, merger and fixed-income arbitrage, shorting stocks, and futures investments. Because of its nuanced investment style, at most it should represent only a small percentage of an investor's overall portfolio. We hope that the increase in assets under management (arising from the combined fund assets) will bring down expenses from its current 1.40% level.