Fund Times: Fidelity, American Century Plan New Mutual Funds

Fidelity Offers New International, Retirement Funds
Fidelity recently issued a preliminary prospectus for a new foreign fund, Fidelity International Value, expected to launch on May 1, 2006. The fund will use traditional value measures, such as price/book, price/sales, and price/earnings ratios, to pick stocks. George Stairs, who previously ran money for crosstown rival Putnam Investments, will captain the ship. Although we're usually skeptical when fund companies launch funds focused on asset classes that have been on long winning streaks--as foreign value stocks have been--this is a legitimate and potentially useful fund. We're also encouraged to see more style-based differentiation in Fidelity's foreign-fund lineup. We don't have complete confidence, however, in Stairs, who was on the management team of  Putnam International Growth & Income (PNGAX) from April 1997 to mid-2005. The fund trailed the foreign large-value category average during that time. On a positive note, the fund's expense ratio will be 1.18%, cheaper than the typical no-load foreign large-value rival's 1.26% levy.

Fidelity also added two more funds to its lineup of target retirement funds, Fidelity Freedom 2045 and Fidelity Freedom 2050. The funds are expected to launch in June 2006. They are ideally suited for investors retiring within 10-15 years of the target date or for people who are currently in their 20s. The other Fidelity Freedom funds offer good exposure to most asset classes of the market, including real estate investment trusts and commodities. These portfolios own too many funds, though, and most of them are mediocre at best. Fidelity has made some improvements to its Freedom funds lineup, but we still think some of the underlying options in the Freedom portfolios are subpar.

New American Century Funds
American Century filed documents with the SEC this week for three new growth funds: Focused Large-Cap Growth, which will only divide up assets among 25-30 stocks; Large-Cap Growth, which will target a portfolio of about 50 stocks; and Multi-Cap Growth, which will own 100-odd companies. The funds will use a quantitative investment strategy that focuses on stocks with rapidly improving earnings. Harold Bradley and Sheila Davis will run the fund. Bradley is an American Century veteran since 1988 and will comanage the fund in addition to his other charge, small-cap growth offering  American Century New Opportunity . Davis joined American Century in 1993 but has no public record managing other funds. Expense ratios weren't available.

Bond Takes a Beating, Leads to Losses for Top Holders
Automotive supplier  Dana  missed payments on two of its bonds this week--its 2009 6.5% and its 2029 7%. Missing the interest payments heightens concern that the auto supplier may be facing financial hardships or may even follow the footsteps of industry peers Delphi Corp. and Collins & Aikman Corp. into bankruptcy court.

This could spell trouble for top bond owners. As of Dec. 31, 2005, the top 2009 owner is  Smith Barney High-Income (SHIAX), which has sizable automotive bets overall. In addition to the 0.44% position in Dana, the new management team also owns fairly large stakes in  General Motors (GM) and  Ford Motor  (F). The top 2029 Dana bond-holder is  DWS High Income (KHYAX), with a 0.29% position, which looks fairly small against the 300-plus names in that fund's portfolio.