Legg Mason Partners Veterans Moving Around and Moving On

On Wednesday afternoon, ClearBridge Advisors, an affiliate of  Legg Mason  that was formed in 2006 after the firm's acquisition of Citigroup Asset Management, announced some Legg Mason Partners funds' manager changes and a fund merger. The changes are big, but at least they will take place gradually.

Alan Blake, lead manager of  Legg Mason Partners Large Cap Growth (SBLGX) since 1997, will retire at the end of October 2009. Peter Bourbeau, who was recently named a comanager of the fund after spending six years with the team, will take over. Scott Glasser, who has been a comanager (with Harry "Hersh" Cohen) on  Legg Mason Partners Appreciation (SHAPX) since 1995, will join Bourbeau at Large Cap Growth while continuing to work on Appreciation.

Legg Mason Partners Equity Income Builder  also will merge with  Legg Mason Partners Capital & Income (SOPAX). Hersh Cohen, who has been with the firm since 1979 and is ClearBridge's chief investment officer, will run the combined fund, which will be called Legg Mason ClearBridge Equity Income Builder. Peter Vanderlee, who was previously responsible for Equity Income Builder, and Michael Clarfeld also will be a part of the newly formed team. Capital and Income's former management team, led by Robert Gendelman and including the fixed-income managers from Western Asset Management, will move off the fund, which got hit pretty hard in 2008's market collapse. This should be a good change for shareholders of Capital and Income, as Cohen's long-term performance has been notable.

Capital and Income's gain is Legg Mason Partners Appreciation's loss, though. After running the fund for 30 years, Cohen will gradually hand his lead manager responsibilities to Scott Glasser. Michael Kagan, who has built up a good long-term record at Legg Mason Partners Equity , will join Kagan. Cohen will stay on the team through the end of 2009 to facilitate the management shift, which should provide continuity.

Huron Consulting's Woes Whack Funds 
Huron Consulting Group (HURN), a provider of operational and financial consulting services, saw its stock drop more than 65% this week on news of accounting issues related to misreported earn-out payments on acquisitions.The firm also announced that its chairman and CEO and its CFO are leaving and that it would restate the last three full years of financials. Interestingly enough, former partners of Arthur Andersen founded Huron after Enron's accounting scandal killed the Chicago accounting firm.

Below is a list of the funds with the biggest stakes in the firm, as a percentage of net fund assets. Many small-growth managers thought this firm, which specializes in giving legal and financial advice to distressed companies, would flourish in the financial crisis and recession. Now the question is who Huron will go to for advice.

Concentrated Fund Owners of Huron (1.75%+)
	Star Rating	% Assets in Huron	Date of Portfolio
Thornburg Global Opportunities (THOIX)		2.67	5/31/2009
Seligman Frontier A		2.56	6/30/2009
TCM Small Cap Growth (TCMSX)		2.08	3/31/2009
Rice Hall James Small Cap		1.92	5/31/2009
Allegiant Small Cap Core		1.85	6/30/2009
Mutual of America Small Cap Growth		1.77	12/31/2008

Hussman Shareholders Get a Big Break
2009 has been a mixed bag for mutual fund expense ratios. Some firms, such as  Charles Schwab  (SCHW)and Davis Selected Advisors, have cut fees. But others, including Vanguard, RS Funds, American Funds, and AllianceBernstein, have seen fees go up due to declining assets.

Good news arrived yesterday for shareholders, though, when John Hussman announced that reductions for his advisory and fund administration fees as well as strong asset growth would reduce fees for both of his funds,  Strategic Growth (HSGFX), an equity fund, and  Strategic Total Return (HSTRX). Both funds have seen strong inflows due to commendable recent and long-term performance.

Strategic Total Return's expense ratio will fall from 0.90% to just 0.67%. This 25% drop in fees will put the fund well below the 0.88% median for no-load conservative-allocation funds. Meanwhile, Strategic Growth's expense ratio will fall from 1.11% to 1.04%, which keeps the fund well below the 1.91% median for no-load long-short funds.

The cuts make the funds, which were bargains to begin with, even better deals.

Pressure on Leveraged ETFs Mounts
Leveraged ETFs, which often use derivatives to deliver exaggerated results of the indexes they track, have grown since 2007. Particularly popular since the bear market have been funds that offer 1.5 or even 2 times the inverse of the daily performance of their indexes. Confusion and questions about the suitability of these instruments could cause investors to cool on them.

The largest leveraged ETF by assets under management as of July 31 is  ProShares UltraShort 20+ Year (TBT). It tries to go 200% in the opposite direction of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Index. For investors who agreed with Warren Buffett and thought the U.S. Treasury bubble of late 2008 was as extraordinary as the Internet and housing bubbles, it seemed like a good long-term vehicle to bet against bonds.

Or so it seemed. Due to the compounding of daily returns, the fund's returns over periods longer than one day will likely differ in amount and possibly direction from the index's return for the same period, according to ProShares. Many retail investors failed to read or understand this, though.

This has caught the attention of the Financial Industry Regulatory Authority, which recently issued a cautionary notice about leveraged ETF sales practices and questions surrounding the suitability of holding these ETFs for longer than one day.

Many brokerages including  UBS (UBS),  Ameriprise (AMP),  Raymond James (RJF) , Edward Jones, and LPL Financial also have now stopped offering leveraged ETFs altogether.

Morningstar warned about drawbacks of leveraged ETFs in January and thinks FINRA is moving the industry in the right direction by deeming these ETFs "unsuitable for retail investors."

Etc.
 FBR Focus (FBRVX) is losing longtime manager Chuck Akre in late September. For all the details, please click here.

Martin Mickus, who was a comanager on Allianz OCC Target  and  Allianz OCC Growth (PGWAX), has left Allianz. In related news, Jeff Parker, manager of the Target fund, has joined longtime manager Robert Urquhart on the Growth fund.

 DWS Emerging Markets Equity (SEKAX) is losing U.S.-based Tara Kenney and gaining Rainer Vermehren, who is based in Frankfurt.

On Aug. 10, 2009, RiverSource Partners Small Cap Equity  will no longer be subadvised by American Century Investment Management, Inc., Jennison Associates LLC, and Lord, Abbett & Co. LLC. RiverSource Investments, LLC will continue to serve as investment manager of the fund.

Domini on Nov. 27 plans to merge three foreign SRI funds (Domini European PacAsia Social Equity , European Social Equity , and PacAsia Social Equity ) into one fund, to be called Domini International Social Equity.

Saturna Capital Corporation, investment manager of the no-load Amana and Sextant Funds, promoted Jane Carten president and CEO, a position previously held by Nicholas Kaiser, who continues as Saturna's chairman, chief investment officer and primary portfolio manager for the Amana and Sextant equity funds.

The SEC announced the final distribution plan for Strong Fund shareholders in the amount of $140,750,000 this week. For further information, please see the release on the SEC Web site.

Fund analyst Jonathan Rahbar and senior fund analyst Gregg Wolper contributed to this report.