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Fund Times

Fund Times: American Funds Shuffles Managers

Plus, two more small-cap fund closings and a Baron manager to launch hedge fund.

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American Funds Shuffles Managers
As a part of a broad plan to split its investment staff into two identical research organizations, the fund boards of  American Funds American Balanced (ABALX),  American Funds Investment Company of America (AIVSX), and  American Funds Fundamental Investors (ANCFX) each approved changes to their manager lineups recently.

The idea behind the division is to spread out decision-making responsibilities among more people so that the growing firm can mitigate the frictional costs of buying and selling larger blocks of shares. Each of the firm's portfolio managers and analysts is now assigned to one of two new organizations. This news indicates that each fund board has hired one of the groups as its advisor.

The most notable change occurred at Fundamental Investors. As a part of its manager shakeup, the fund is losing one of the firm's most well-known managers, Gordon Crawford, a 30-year veteran of the firm. Although the firm's fund managers don't seek the limelight, Crawford's name has come up in the press because of his reputation for being among the most influential media investors on the buy side. For example, several publications reported that Crawford played a role in getting Steve Case to step down from his post as (AOL)  Time Warner's (TWX) chairman in 2003. Brady Enright and Ronald Morrow are filling Crawford's shoes on the fund. Crawford will remain at the firm and his other funds, including  American Funds Growth Fund of America (AGTHX),  American Funds New Economy (ANEFX), and  American Funds Smallcap World (SMCWX).

At American Balanced, Alan Berro and Dina Perry have replaced J. Dale Harvey. Unrelated to the split plans, which won't affect the fixed-income department, James Mullaly has taken the spot of fellow bond boss Mark Macdonald on American Balanced. Perry and Harvey have essentially swapped posts, as Harvey will be taking her spot in the mix of managers at Investment Company of America.

None of these changes are particularly disruptive but it does illustrate just how significant the split is to the firm's internal workings.

Two More Small-Cap Fund Closings
Masters' Funds said its  Masters' Select Smaller Companies (MSSFX) is "temporarily" closing to new investors in order to slow the rate of assets going into the fund. In February, the firm fired one of the fund's five advisors, David Anthony, thus paring the fund's capacity.

"It is believed that doing so will preserve the ability of the Smaller Companies Fund's individual investment managers to effectively manage the fund's assets," the firm said in a press release. The firm said it may reopen the fund after it hires one or more new subadvisors.

Meanwhile,  William Blair Small Cap Growth (WBSIX) will close to new investors on May 1. Manager Karl Brewer has put up nice results during his six-year tenure at the fund, which has about $1 billion in assets.

Baron Funds Loses President, Portfolio Manager
Baron Funds announced that manager Mitch Rubin and firm president Morty Schaja are leaving to set up a hedge-fund business. Rubin had been running  Baron Fifth Avenue Growth (BFTHX) and  Baron iOpportunity (BIOPX). Fifth Avenue Growth will now be managed by Ron Baron, Cliff Greenberg, and Andrew Peck. iOpportunity will be run by Mike Lippert.

"There will be no changes to the investment strategies followed by Baron Fifth Avenue Growth and Baron iOpportunity as a result of the change in managers, and both funds will continue to be supported by Baron's extensive team of research analysts," the firm said. "Baron has also initiated a search for a new portfolio manager for Baron Fifth Avenue Growth Fund, which will be managed by the team until the new manager is in place."

Rising Star at Fidelity Departs
One of Fidelity's up-and-coming managers, Kathy Lieberman, has left the firm. Thomas Hense will replace her at the helm of  Fidelity Small Cap Value (FCPVX).

Hense joined Fidelity as a high-income analyst in 1993 and became director of high-income research in 1999. In 2000, he joined Fidelity's Equity Division and soon after became co-director of equity research. Hense has also managed small-cap-oriented institutional accounts for the firm since 2004.

State Street Plans a Slew of Sector ETFs
State Street is making it easier than ever to gamble on narrow sectors. The firm filed with the SEC to launch 16 new exchange-traded funds. The funds will track the following industries: aerospace and defense, building and construction, computer hardware, computer software, health-care equipment, health-care services, leisure, metals and mining, oil and gas equipment and services, oil and gas exploration and production, outsourcing and IT consulting, pharmaceuticals, retail, telecommunications, and transportation.

Schroder Funds Plan Fee Hikes
Schroder is asking fund investors to approve a 25-basis-point increase in management fees at  Schroder U.S. Opportunities (SCUIX) and Schroder International Equity (SCIEX). The firm also wants to eliminate breakpoints in fees so that shareholders won't benefit from economies of scale when assets grow.

Although this would result in expense ratios above the fund category averages, the fund's board is okay with that. The proxy statement reads: "The Trustees noted that, although both of the fees in question would be raised to a level above the average for comparable mutual funds, the fees would in each case be within the range of fees paid by comparable funds. The Trustees concluded, in the exercise of their business judgment, that it was in the best interests of the Funds and their shareholders to agree to the proposed fee increases in order to ensure Schroder's continued strong business interest in the success of the Funds and in providing a high level of service and investment performance to the Funds."

Warren Buffett Criticizes Hedge Funds
Warren Buffett's annual shareholder letter warns about the dangers of adding more and more fees to pay for investment management. Specifically, he bemoans the growth of hedge funds with their high fees that will in the aggregate make the average investor poorer. Buffett proposes a new law for investing:

"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, 'I can calculate the movement of the stars, but not the madness of men.' If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases."

Russel Kinnel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.