Fund Times: Layoffs and 2008 401(k) Trends

The layoff picture remains bleak for workers in the asset-management business, especially at companies that did not protect shareholders from the brutal 2008 market. Oppenheimer Funds announced it was cutting staff to align their staffing with their business plans. They reduced their workforce across the organization by 220 people (less than 10% of staff). These layoffs come at a tough time for investors. Just as experienced investment management advice is needed, many veterans in the industry are being laid off because of deteriorating financial conditions at their employers.

Meanwhile ING, one of the worst asset managers over the past 20 years, according to a recent Forbes study, announced their own set of layoffs. The U.S. asset-management division has eliminated about 135 positions, including some senior investment executives. The layoffs include CIO Fredric (Rick) Nelson, head of fixed income Jim Kauffmann, and head of quantitative equities Omar Aguilar.

Vanguard Closes Money Market Funds
Vanguard has closed Vanguard Admiral Treasury Money Market Fund VUSXX and Vanguard Treasury Money Market Fund VMPXX to new accounts. This follows the decision of other firms, including MFS, to close such funds. In announcing the decision, Vanguard noted, "yields on short-term Treasury securities have reached historic lows."

We applaud Vanguard's actions. The math for money market and short-term Treasury funds is straightforward: When the yield on the funds drops too low, the management fee eats up most of the fund's returns. This was the case here even though Vanguard's fees are among the lowest in the industry. Currently, the Treasury Money Market fund has a management fee of 0.28% while the SEC yield is a paltry 0.46%. It almost makes as much sense to keep money under your mattress with a return that low. Watch for other money market funds to close to new investors or close down entirely if yields remain at these levels for an extended period.

Fidelity Reports 401(k) Tidbits from 2008
Fidelity, one of the nation's largest 401(k) providers, released a slew of stats and trends from 2008 about the 401(k) plans they administer. Here are a few we found interesting:

� Lifecycle funds gain traction: By the end of 2008 more than 60% of plans were using life-cycle funds as a default option, up from 38% at the end of 2007 and just over 5% at the end of 2005.

� Participants contributed an average of $5,600 (pretax earnings) to their 401(k) accounts, slightly higher than 2007 levels.

� Average workplace savings account balances dropped 27% in 2008 to $50,200 from $69,200 in 2007.

� The trend toward diversification continued in 2008 with the percentage of participants holding 100% equities in their workplace savings plan dropping to 16% at the end of 2008 from more than 20% at the end of 2007. By comparison, 37% of participants were holding 100% equities in 2000.

� As of the end of 2008, company stock made up about 10% of Fidelity's overall assets in workplace savings accounts, down from over 20% in early 2000.

A 'Fool' Enters the Mutual Fund Business
When markets are depressed, it is an ideal time for new asset managers to spring into action or for existing managers to offer new products. This way their new mutual funds can start with a clean record and there is a good chance the fund's returns from inception date will remain positive for the long haul (or at least until the next bear market). A Fool recently announced it has entered the asset manager business in spite of the economic chaos. However, this is no ordinary Fool.

Motley Fool, the popular online investing portal, has reorganized the company into two business units: The Motley Fool and Motley Fool Asset Management. The latter plans to introduce a family of retail (i.e. mutual funds) and institutional investment services this year with "an emphasis on independent investment thinking and disciplined financial analysis--plus Foolishly clear communications." We are all for clear communications and are happy to see the new firm will do its own thinking and maintain disciplined, rather than lazy, financial analysis. These Fools may really be on to something.

Statements of Additional Information
Vanguard announced the creation of the Total Bond Market II Index Fund. This fund will be available for use only by other Vanguard funds and will be the primary bond component of Vanguard's 11 Target Retirement and four LifeStrategy funds. This should be good news for existing  Vanguard Total Bonds Market Index  (VBMFX) shareholders who will be insulated from the potential costs associated with the rebalancing activity in Vanguard's retirement and life-cycle funds.

Neuberger Berman announced in a filing that the board of directors has approved a plan to merge Neuberger Berman Large Cap Disciplined Growth  into Neuberger Berman Century  on or about April 9. In a separate filing, they announced  Neuberger Berman Genesis (NBGNX), which has been closed for the past seven years, has reopened to new investors.