Fund Times: The Market Meltdown's Biggest Winners and Losers
Plus, new Putnam funds, Fidelity manager changes, and more.
With the jarring nosedive the stock market has taken amid the financial crisis and the failure of the initial government bailout plan, it's no surprise that nearly all large-value funds have lost money recently, given their typically large stakes in the financials sector. Below we look at some funds that have tanked since Lehman Brothers collapsed on September 15, as well as a few that have survived fairly well.
We've long been fans of managers who invest with conviction, but Arnie Schneider's decision to stash nearly 40% of Schneider Value (SCMLX) in financials as of the end of June--not to mention a 9% stake in Freddie Mac (FRE) and Fannie Mae (FNM)--demonstrates the downside of a concentrated portfolio. The fund was one of the hardest-hit in the recent turmoil, down nearly 13% from Sept. 15 through Sept. 30. Schneider Value isn't the worst offender, however. Touchstone Large Cap Value (TLCAX) is down 22.4% in the same period and has lost nearly 54% for the year to date. That fledgling fund, which launched in 2006, seemed to own nearly every struggling stock in its June portfolio, including Fannie and Freddie, Washington Mutual (WM), and insurance giant AIG (AIG).
Only one large-value fund has stayed in the black this year: Forester Value (FVALX) delivered a 1.6% return from Sept. 15 through Sept. 30, and has gained 11.5% for the year to date. The nine-year-old fund staved losses with its low 10% stake in financials, instead loading up on profitable health-care and consumer names.
Other funds escaped the turmoil with minimal damage, relatively speaking. Yacktman (YACKX), for example, has recently outperformed nearly all of its large-value peers with a -3.2% return (from Sept. 15 to Sept. 30). Although this fund is highly concentrated, it has held up better than Schneider Value by putting large stakes in consumer names and keeping only 11% in financials as of the end of June (compared with the category average of 21%). Similarly, respected manager Jean-Marie Eveillard of First Eagle U.S. Value (FEVAX) generally eschews financials and has kept a big stake in cash, limiting the fund's recent loss to 3.4% (Sept. 15-Sept. 30). And Fund Analyst Pick WHG LargeCap Value Instl (WHGLX) continues to earn its stripes. By sticking to some of the more stable financial firms, including JP Morgan (JPM) and Wells Fargo (WFC), it's slipped just 3.4% in recent weeks.
Neuberger Berman Finds a New Owner
Two private-equity companies, Bain Capital Partners, LLC and Hellman & Friedman LLC, have agreed to purchase Neuberger Berman, the mutual fund business of bankrupt Lehman Brothers Holdings. The deal also includes the fixed-income and alternative asset-management arms of Lehman Brothers' Investment Management Division. The acquisition, expected to be completed in 2009, will lead to a stand-alone investment firm with an estimated $230 billion of assets under management (the combined value of Neuberger Berman and the Lehman division). Portfolio managers and other senior professionals will own at least 20% of the new conglomeration, and Bain Capital and Hellman & Friedman will split the remaining stake evenly.
This is not the first time Hellman & Friedman has bought out a financial firm. In 2006, it purchased European asset management firm Gartmore Investment Management in a similar fashion, with employees retaining partial ownership of the firm. It also has a stake in Artisan Partners, LPL Financial, and Arch Capital Group Ltd, among others, and generally takes a hands-off approach with these acquired firms. Bain Capital, meanwhile, has generally stayed away from acquiring financial firms until now, preferring to invest in consumer companies.
The new company will be headed by George Walker, who had been head of investment management for Lehman. Joe Amato will continue to be in charge of the Neuberger arm. Overall, we're pleased that investment personnel will have some ownership stake in the firm. Meanwhile, we expect little disruption, if any, for Neuberger Berman fundholders.
Lehman's Lost Legacy
In other Lehman news, all of the fixed-income products previously sold under the Lehman Brothers moniker will be changed to the Neuberger Berman name.
And in an ironic twist that underscores the rapid unraveling of the financial system in the past month, Barclays, which purchased a large stake of Lehman's assets after Lehman filed for bankruptcy, announced that Lehman's defaulted bonds are no longer eligible for their namesake index, which for now is still known as the Lehman Brothers Aggregate Index.
Life Goes On with New Fund Launches
Despite this week's financial chaos, some major fund shops are touting new mutual funds. Putnam announced a new suite of global sector funds: Putnam Global Consumer, Putnam Global Energy, Putnam Global Financial, Putnam Global Industrial, Putnam Global Technology, and Putnam Global Telecommunication. All the funds will be run by Putnam analysts who have worked on a variety of other Putnam offerings.
Putnam isn't stopping there. The fund shop is venturing into the ever-growing long-short space with five absolute-return funds aimed at outperforming the Merrill Lynch U.S. Treasury Bill Index by the amount indicated by their names. Putnam Absolute Return 700, for example, hopes to beat the index by 7 percentage points over a period of three or more years.
We don't think these trendy new funds are the best move for Putnam given the fund shop's difficulty in racking up impressive records for its more-diversified offerings. And with Putnam's history of management turnover, we're not confident that the firm has the analytical capacity to venture into such specialized niches at this time. We think all efforts should go toward shoring up their current lineup. We'd steer clear.
Other New Funds of Note
Investment-management firm International Value Advisers, which just hit its one-year anniversary, launched two new global funds on Oct. 1: IVA Worldwide Fund and IVA International Fund. As we have discussed previously, the funds will be run by former First Eagle managers Charles de Vaulx and Charles de Lardemelle.
Alpine Funds also has two new offerings: Alpine Emerging Markets Real Estate and Alpine Global Infrastructure. Expenses will be capped at 1.35%. Veteran investor Samuel Lieber will manage the funds, and Robert Gadsden will assist. Lieber currently runs several funds, including Alpine International Real Estate (EGLRX) and Alpine U.S. Real Estate Equity Fund (EUEYX). His penchant for making highly concentrated bets at those funds has led to high volatility, and he will likely use the same bold approach here.
Wells Fargo is venturing into socially responsible investing with its launch of the Wells Fargo Advantage Social Sustainability Fund. Like other SRI funds, it will avoid the tobacco, alcohol, weapons, and gambling industries. Nelson Capital Management will serve as subadvisor, and the A share's expense ratio will be 1.25%.
Changes at Fidelity
Benjamin Hesse, current manager of Fidelity Select Brokerage and Investment (FSLBX), joins Richard Manuel as comanager of Fidelity Select Financial Services (FIDSX) and Fidelity Advisor Financial Services (FAFDX). This isn't the first time Manuel has had a comanager: Brian Younger assisted before leaving earlier this year.
Health-care manager Eddie Yoon is joining Matt Sabel as comanager of Fidelity Select Health Care (FSPHX) and Fidelity Advisor Health Care Fund (FACDX). Yoon will continue to run Fidelity Select Medical Equipment and Systems (FSMEX), which has had a stellar year.
Finally, Anton An has replaced Maurice FitzMaurice as manager of Fidelity Select Transportation (FSRFX). FitzMaurice will continue to run Fidelity Select Defense & Aerospace (FSDAX) and Fidelity Select Air Transportation (FSAIX). This is Anton's first role as manager; he has covered specialty stocks at Fidelity since 2006.
Katie Rushkewicz Reichart has a position in the following securities mentioned above: YACKX. Find out about Morningstar’s editorial policies.