Fund Times: Putnam Sale Finalized

Rumors circulated widely in the press last week that  Marsh & McLennan Companies' (MMC) proposed sale of Putnam Investments to Canadian firm Power Financial Corp. might not go through; however, the firms announced Feb. 1 that the deal had, in fact, been finalized. Putnam will be acquired by Great-West Lifeco Inc., a Power Corp subsidiary, for $3.9 billion. The transaction is expected to close by midyear 2007.

Changes for Putnam investors, it seems, will be few. "Putnam will retain our name, brand, and headquarters in Boston and other locations. Putnam's President and Chief Executive Officer Ed Haldeman will continue to lead Putnam. Putnam's senior team, including investment management and business professionals, will remain in place. ... (and) There will be no changes to the way we manage money or to our investment processes," wrote Putnam senior managing director William Connolly Jr., in a letter to clients.

News of the sale clears up some of the uncertainty surrounding Putnam's funds. Power Financial doesn't have a lineup of U.S.-based mutual funds, so there's no product overlap. What's more, Power Financial has a history of allowing its acquisitions to operate autonomously, so we don't expect any major changes at Putnam.

Even so, Putnam remains a work in progress. In recent years, the firm has had trouble holding on to key employees--a problem that a new corporate parent won't necessarily fix. We'd like to see the firm do a better job retaining talented managers and research analysts.

Fidelity to Launch New Small-Cap Offering
Fidelity Investments has filed to launch the Fidelity Small Cap Opportunities Fund. Judging from regulatory documents, it looks like a small-blend fund. Manager Lionel Harris will have the flexibility to purchase either growth or value stocks. Harris, who has been with Fidelity since 1995, has worked under  Fidelity Low-Priced Stock (FLPSX) manager Joel Tillinghast and has run  Fidelity Small Cap Growth (FCPGX) since April 2005. Harris will use the Russell 2000 Index and the Standard and Poor's SmallCap 600 Index as benchmarks and will have the freedom to invest in domestic and international stocks.

Harris has achieved solid results in a brief stint at Small Cap Growth. He also has amassed decent experience as a small-cap analyst from 2000 until 2005 and as a high-yield analyst from 1996 through 1999. We're always a bit concerned, however, when a fund shop launches an offering in a category that has been hot in recent years, as small caps have been. Also, Fidelity already runs a lot in small-cap funds, and we're concerned capacity could be an issue should new funds attract significant asset flows.

TCW Cuts Costs on Bond Fund
On Feb. 1, the TCW Group reduced TCW Core Fixed Income Fund's expenses. The expense ratio for the fund's "I" share class (TGCFX) dropped to 0.44% from 0.79%, and the levy for the offering's "N" share class (TGFNX) fell to 0.78% from 1.08%. The cost cuts will remain until at least Aug. 1 and can be reviewed and extended every six months.

These changes will allow investors access to veteran manager Jeffrey Gundlach, Morningstar's 2006 Fixed-Income Fund Manager of the Year, at a bargain price. We've seen a shareholder-friendly action on expenses from this firm before. Several years ago TCW dropped the minimum investment on  TCW Total Return Bond (TGLMX), allowing investors access to that offering's low-priced institutional share class. We're very pleased with this development and hope to see the price cuts continue long into the future.

Changes to Dodge & Cox Management Announced
Dodge & Cox chairman Harry Hagey formally retired at the end of last year, leading to some reshuffling in the firm's top ranks. John Gunn took over as chairman. Gunn has worked at Dodge & Cox for nearly 35 years, serving as chief investment officer, president, chief executive officer (since 2005), and now as chairman. Hagey retired after working at the firm for 39 years, serving as CEO from 1992 to 2005.

Director of credit research Charles Pohl became CIO, and C. Bryan Cameron became director of research, a position he formerly shared with Pohl. The firm also announced the departure of research analyst Kouji Yamada.

Catholic Funds Seek Union
On Jan. 24, the board of the $62 million Catholic Equity  fund voted to merge it into the $35 million Ave Maria Rising Dividend (AVEDX). Both funds employ a similar investment screen, buying only companies that promote--or at least don't offend--mainstream Catholic values. However, the large-blend Catholic Equity focuses on what its management deems underpriced blue-chip companies, whereas Ave Maria Dividend Rising looks for dividend-paying stocks and falls in Morningstar's mid-value category. Catholic Equity has dropped its load in anticipation of merging with the no-load Ave Maria offering. The merger is subject to fund-shareholder approval.