Fund Times: Wellington to Manage Large SRI Fund

The first and largest socially responsible index fund is going active and raising its expenses. Domini Social Investments LLC, which launched the first socially responsible index fund in 1991, today filed documents with the SEC to seek shareholder approval for bringing Wellington Management on board as subadvisor to their popular ($1.2 billion)  Domini Social Equity  (DSEFX). The fund will no longer track the Domini 400 Social Index, but will instead be actively managed by Wellington using quantitative methods. As a result, the expense ratio of the Investor shares will go up to 1.15% (versus 0.95% currently, and the R shares will go up to 0.85% (versus 0.62% currently).

Wellington has been subadvising the new Domini European Social Equity  , since it launched late last year. While Wellington's performance with the European Social Equity fund has been promising, this fund has not been open long enough to evaluate. Nevertheless, we have a good deal of respect for the research process and capabilities at Wellington, and we remain hopeful that the firm can turn the lagging Social Equity fund's performance around. The fund's three-year total return through May 24, 2006, lands it in the large-blend category's bottom quartile, clearly a disappointment to investors and advisor alike.

PIMCO's Long-Term Market View
Bond giant PIMCO has recently set its investment outlook for the next three to five years. After a large three-day research meeting, called its Secular Forum, the firm has come to the following consensus regarding its macroeconomic outlook. The firm believes that "global real yields� should stay reasonably low--perhaps 2% on average (lower in Japan)." This is based on a forecast of 10-year note rates between 4.0% and 5.5% in the United States, 3.0% and 4.5% in the European Central Bank zone, and 1.5% and 3.0% in Japan. Also, the firm sees average inflation rates, from 2006 to 2010, of 2.5%, 1.5%, and 1% for each of these areas, respectively. Based on these projections, and their view of continuing dollar weakness, investors should expect, according to bond manager Bill Gross' take on the outlook, "PIMCO portfolios� [to] feature increasing international diversification in foreign currency terms."

As PIMCO managing director Paul McCulley explained in a recent research note on this year's Forum: "The Forum is the soul of our investment philosophy: a long-term orientation, above and beyond the business cycle, aimed at identifying the powerful, even if glacially-slow, structural changes that will shape the fate of economies and markets." The note goes on to explain: "We believe that focusing on secular trends offers the greatest opportunity to add value relative to the overall market, which is largely preoccupied with pricing in short-term factors and [is] considerably less mindful of long-term trends."

JP Morgan Launches New Target Date Funds
JP Morgan Funds, the mutual fund division of JP Morgan Asset Management, has jumped on the target date fund bandwagon with the introduction of their JP Morgan SmartRetirement series of funds. The six new funds are: JP Morgan SmartRetirement Income  (JSRAX), JP Morgan SmartRetirement 2010 , JP Morgan SmartRetirement 2015 , JP Morgan SmartRetirement 2020  (JTTAX), JP Morgan SmartRetirement 2030  (JSMAX), and JP Morgan SmartRetirement 2040  (SMTAX).

Like virtually all target date funds, these offerings will shift asset allocations as the investor approaches retirement, to provide greater income and capital preservation in the later years of work and retirement. The funds' expenses range from 1.3% for the 2040 fund to 1.0% for the income fund used in retirement, which overall is a bit less expensive than typical front-load funds in these categories.

ProFunds Wins SEC Approval for Leveraged ETFs
ProShare Advisors has won SEC approval for its proposed lineup of 12 ProFunds leveraged ETFs, which will allow investors to profit from the upward and downward movements of market indexes. The funds have been offered in two groups, the four Bullish Funds, which are designed to provide investors with 200% of the return of a particular index, such as the S&P 500 with ProFunds Ultra500; and the eight Bearish Funds, which will move in the opposite direction of their given index. While these funds can be used to hedge portfolios, most people can build diversified long-term portfolios without them.

BlackRock and Merrill Lynch Union Brings Fund Mergers
The Merrill Lynch and BlackRock deal announced in February has resulted in some fund mergers. As we suspected would be the case, the mergers, both within Merrill Lynch's own funds, and between the two firms' offerings have occurred within the fixed-income lineup. In a filing with the SEC, Merrill Lynch announced that  Merrill Lynch U.S. Government   will be merged into  BlackRock Government Income , should shareholders approve. While the investment objectives of the two funds are not identical, we nevertheless feel investors will be well served by the merger.

Additionally, Merrill will internally merge Merrill Lynch Intermediate-Term Bond  into  Merrill Lynch Core Bond (MDHQX), a larger fund run by the same management team. We hope the merger will lead to lower expense ratios at Core Bond, due to its increased assets and economies of scale.

New Chief Economist at OppenheimerFunds
OppenheimerFunds, Inc. has just announced the promotion of Jerry Webman to the post of chief economist at the firm. Webman, who holds a Ph.D. in political science from Yale University and a batchelor's degree in political science from the University of Chicago, has previously served as an assistant professor of public affairs at the Woodrow Wilson School of International Affairs at Princeton University. Webman also has more than 20 years experience as a financial researcher and portfolio manager, first as managing director and chief fixed-income strategist at Prudential Mutual Funds, and since 1996 at OppenheimerFunds, where he will remain senior investment officer and director of fixed income.