Fund Times: SEC Investigates Wall Street Front-Running

The New York Times reported that the SEC is investigating several Wall Street banks for potentially divulging inside information to clients in advance of large institutional trades. The recipients of such information could use it to front-run the trades, whereby they take a position that will benefit once the brokerage executes the trade for the institution (commonly, mutual fund companies). The investigation is still in its fact-finding stages, according to an SEC officer quoted in the report, and the firm has already requested information from several large banks including  UBS (UBS),  Deutsche Bank (DB),  Merrill Lynch & Company  , and  Morgan Stanley (MS).

Veteran Financial-Sector Investor to Retire
John Hancock Funds' Jim Schmidt will retire this spring after more than 25 years in the business. Schmidt is the lead manager on several John Hancock funds, and his 21-year tenure at  JHancock Regional Bank (FRBAX) is the longest of any financial fund manager. It's no surprise that this fund is the largest in its category, either. Since the 1992 inception of its A shares, Schmidt delivered a load-adjusted annualized return of 15.7%. He made sure the fund benefited from a wave of industry consolidation that began in the mid-1990s and that he and his team believe is not done yet.

Metropolitan West Closes Fund
 Metropolitan West Strategic Income (MWSTX) will close soon. The firm announced plans for a soft-close of this short-term bond fund at the end of March. The close bodes well for current shareholders. Met West's team needs to keep this fund nimble--it currently has less than $300 million in assets--in order to execute its unusual strategy. The team invests a significant percentage of assets in high-yield bonds in an effort to squeeze extra return out of the market, although it hedges those holdings with complex financial instruments to reduce credit risk.

BlackRock Readies Launch of Target-Date Funds
BlackRock will soon introduce nine Lifecycle Prepared Portfolios to meet various target retirement dates. The new lineup will start with a 2010 fund, with another fund for each succeeding five years through 2050. The 2040, 2045, and 2050 funds will all invest 100% of assets in underlying BlackRock equity funds at their launch, while the funds with closer target dates will have a mixture of both equity and fixed-income exposure. BlackRock did not announce the expense ratios for any of the funds.

Managers are in place for the new funds. Philip Green, a BlackRock managing director, and Linda Zhang, a director at the firm, will lead the way. Zhang joined BlackRock in its merger with State Street Research & Management, while Green recently joined the firm from Merrill Lynch Investment Managers.

TIAA-CREF Adds Manager to International Fund
 TIAA-CREF International Equity  is getting a new comanager. Shigemi Hatta joins the team as its lead stock-picker for Asia-based companies. She replaces former comanager Yumiko Miura, who is no longer with the team. Christopher Semenuk will remain with the team and become lead portfolio manager.

Fidelity Names New Managers to Several Funds
Fidelity Investments added Ramin Arani as a new comanager of  Fidelity Puritan (FPURX), a solid, if unspectacular, hybrid fund managed by Stephen Peterson since 2000. Comanagement of funds is still quite unusual for Fidelity.

Jeffrey S. Feingold succeeds Arani at  Fidelity Trend (FTRNX). Feingold also manages the U.S. sleeves of  Fidelity Worldwide (FWWFX) and  Fidelity Global Balanced  and has had several sector-fund assignments. Also, Jason Weiner succeeds Adam Hetnarski as manager of  Fidelity Growth Discovery (FDSVX) (formerly Fidelity Discovery). The change was not unexpected--Fidelity had indicated that the fund would get a more growth-oriented manager to match the fund's modified mandate. Weiner recently became manager of  Fidelity Advisor Equity Growth (FAEGX) and has run a number of diversified funds over the past 10 years. Most recently, he managed  Fidelity Independence , where he handily beat the large-growth category average from April 2003 through November 2006.

The firm also named Christopher T. Lee and Paul Jackson as comanagers on  Fidelity Select Electronics (FSELX) and Fidelity Advisor Electronics (FELAX). The two are among the experienced analysts Fidelity has tried to hire over the past couple of years. Finally, Brian Younger and experienced hire Dick Manuel, who joined the firm in 2005 to run  Fidelity Select Home Finance (FSVLX), succeeded manager Charles Hebbard at  Fidelity Select Financial Services (FIDSX) and  Fidelity Advisor Financial Services (FAFDX). (Read more about Fidelity in our Fidelity Fund Family Report.)

Huge Buyout Spurs Further Rally in Real Estate Funds
Private-equity firm Blackstone Group won its bidding war with  Vornado Realty Trust (VNO) for  Equity Office Properties Trust , the second largest REIT stock in the Dow Jones Wilshire REIT Index. The action highlights two red-hot trends in recent years--real estate and private buyouts--and contributed to the REITs' incredible ongoing run. The real estate category has returned an annualized 26% over the last five years, the highest return among all Morningstar categories in that time period. This buyout helped spur REIT funds to return, on average, 11% in just five weeks in 2007.

REITs and real estate funds look pricey now after their strong recent returns. At these levels investors should be cautious with their real estate stakes, perhaps rebalancing if property-link securities have grown to claim too large a portion of their portfolios. But we don't think investors should dump REITs altogether. They remain a legitimate alternative asset class to stocks and bonds.

Evergreen to Merge Two Tax-Free Funds
Evergreen Investments will merge Evergreen FL Municipal Bond  (a Florida-specific offering) into  Evergreen Municipal Bond . The merger comes after Florida repealed its Intangibles Tax in 2007. That move rendered the tax advantage of Florida-specific municipal-bond funds obsolete, because investors no longer save on taxes by owning a Florida-specific fund as opposed to a nationally oriented fund. Investors in any Florida-specific muni-bond fund should consider nationwide alternatives for their wider diversification of assets.