SEC Fee Rules Are Good, but Could Be Better

Two actions by the SEC this week demonstrate the commission's desire to help fund shareholders better understand the fees they're paying and better evaluate the advisor managing their investments.

On Wednesday, the commission released a proposed rule that would bring changes to funds' marketing and distribution fees, which are known as 12b-1 fees. The proposal aims to curb fees on fund share classes that can be significantly more costly for long-term shareholders, such as C shares, and could lead to changes in the ways fund supermarkets disclose their distribution costs to shareholders.

Brokers would also be allowed to compete on the sales charges they levy clients for the first time if the proposal is enacted. Currently, all brokers are required to charge the same sales fee as specified in a mutual fund's prospectus.

The SEC said Wednesday that it's also making changes to a form that advisors must distribute to clients outlining the advisors' professional qualifications. The disclosure--Form ADV Part 2--will change from a check-the-box questionnaire to a plain-English narrative brochure that describes the advisors' fees, compensation, code of ethics, and professional disciplinary actions.

These new initiatives come on the heels of another proposal that would mandate a change in the required disclosure regarding target-date retirement funds. The initiative would require funds to include graphics that depict a fund's shifts in asset allocation as well as a specific mention--under the fund name--of the fund's asset allocation at the actual target date.

Collectively, these proposals could help fundholders be more successful investors, especially if they lead to lower, easy-to-dissect sales charges and more knowledge of the person managing their investments. Improved transparency on target-date funds, which are quickly becoming the leading choice among retirement-savings plan investments, is also welcome.

But the SEC could have gone further to ensure more transparency when it comes to fund fees. As the SEC has acknowledged in its review of 12b-1 fees, fund accounting is muddy, making it impossible for shareholders to fairly compare the services they receive for each portion of a fund's expense ratio. On the flip side, the SEC's disclosure requirement regarding target-date funds' asset allocation on the target date may be placing too much emphasis on a single point of a decades-long investment.

PIMCO to Launch Emerging-Markets Strategy
PIMCO announced today that it has hired a Goldman Sachs veteran to start an emerging-markets equity group at the Newport Beach, Calif. bond shop.

This follows PIMCO's successful launch of its first equity fund earlier this year--PIMCO Eqs Pathfinder , a global deep-value fund--run by a pair of Mutual Series veterans.

Maria Gordon will join PIMCO as an executive vice president and emerging market equity portfolio manager. Previously, Gordon was a managing director, portfolio manager, and head of global emerging markets equity strategy at Goldman Sachs Asset Management. She most recently served as a lead portfolio manager for Goldman Sachs Emerging Markets Equity (GEMAX) from 2003 to 2010 and a co-lead portfolio manager for Goldman Sachs BRIC  from 2006 to 2010.

The Emerging Markets Equity fund was up 19.5% per year from 2003 until the end of 2009, which is a little less than the major emerging-markets benchmark indexes over the same period.

Gordon begins with the firm in October at its London office.

No timeline has been set for the launch of PIMCO's new fund. However, the Eqs Pathfinder fund took approximately four months to launch after PIMCO hired the managers for that fund.

PIMCO also announced that it has recently hired five other senior equity investment professionals as part of the ongoing build-out of its active equity platform.

USAA Dumps Marsico
 USAA Aggressive Growth (USAUX) fired Marsico Capital Management and replaced it with Winslow Capital Management and Wellington Management Company LLC. Each of the new firms will manage half of the fund's portfolio.

The consultants responsible for the fund's management said they made the change because of former manager Tom Marsico's recent underperformance, the fact that his eclectic growth style doesn't track the Russell 1000 Growth Index well, and key-man risk, or the fear that Marsico doesn't have much backup at the firm he founded. The fund has lost 2% per year during the past five years, while the Russell 1000 Growth Index is flat over the same period.

Winslow Capital Management has had a team in place for a decade specializing in large-growth funds. It seeks to outperform the Russell 1000 Growth Index by 300 basis points per year over a three- to five-year period. The Winslow team, led by Clark Winslow, has managed  MainStay Large Cap Growth (MLAAX) since June 30, 1995, and has produced an annualized return of 5.2% through June 30, 2010, on that fund. That's slightly ahead of the 5% return of the Russell 1000 Growth Index over that period, which is short of the firm's performance goal.

Wellington Management is a well-known, Boston-based institutional asset manager. The firm is a subadvisor for multiple Vanguard funds. It has a central research staff and boutiques with different styles built around the central team. The large-growth group consists of three people picking around 60 to 90 stocks with superior growth prospects, higher-than-average returns on invested capital, and that are trading at reasonable prices. USAA reports that the Wellington growth team has produced a 6% annualized return for the past five years through June 30, 2010, for the institutional accounts it manages. Though Morningstar hasn't verified this record, it beats the 1.2% annualized return of the Russell 1000 Growth Index during that time.

Vanguard Likes the Odds for Equities
There's a good chance investors will get positive equity returns over the next decade, according to a recent capital markets outlook issued by Vanguard.

The 18-page report dives into everything from inflation expectations over the next decade to expected returns from emerging-markets stocks. This the first time Vanguard has issued this type of report, and they expect to update it annually.

Vanguard cautions that its forecasts, which discuss a wide range of possible outcomes, are long-term in nature. But here are some key points:

� Chances of a double-dip recession are about 20%.

� 3% inflation should be expected over the long term.

� Long-run median returns for most fixed-income indexes should be below current benchmark yields.

� The long-term median return for global equity markets is near historical averages given current market valuations and the projected equity risk premium. Specifically, there is about a 65% chance the S&P 500 will return between 4% and 16% over the next decade. This may surprise some given the expected headwinds to long-run economic growth.

� There is a 65% chance REITs will return between 0% and 12% annualized over the next decade.

Etc.
David Yuen is no longer comanager of  AllianceBernstein Value (ABVAX) and  Vanguard Windsor (VWNDX), which is subadvised by the same team. Gregory Powell takes his place as a named comanager. Yuen is still at AllianceBernstein.

Harris Associates L.P., investment advisor to The Oakmark Funds, announced that Kristi Rowsell has been elected president and trustee of The Oakmark Funds. Rowsell is currently president and chief financial officer of Harris Associates. She succeeds John Raitt, who was most recently president and CEO of Harris Associates L.P. and who continues to serve as a senior U.S. investment analyst.

AARP announced it is getting out of the fund business and will liquidate all of its mutual funds. Without a good distribution network or a strong brand name, the company struggled to gain assets. The funds have approximately $160 million in assets under management.

Pax World Management LLC, investment advisor to Pax World Funds, announced that during the 2010 proxy season it withheld votes from 74 board slates because those companies did not nominate any women directors.

Guy Uding, Patrick den Besten, and Eric Anderson replaced Jan-Wim Derks, Robert Lampl, and Michael Bootsma as portfolio managers of ING Emerging Countries . Also, Matthew Cohen is off the portfolio management team of  ING International SmallCap Multi-Manager (NTKLX).

Mathew Kiselak joined Chris Alwine as comanager of  Vanguard High-Yield Tax-Exempt (VWAHX) and  Vanguard Long-Term Tax Exempt (VWLTX). Kiselak previously managed municipal-bond funds at Evergreen, which was then acquired by Wells Fargo.

Martin Hegarty joined the portfolio management team of  BlackRock Inflation Protected Bond (BPRAX).

Kenji Noumura joined the portfolio management team of SunAmerica International Equity .

Peter Doyle, Murray Stahl, David Kingsley, and James Davolos replaced William Brennan as portfolio managers of Kinetics Water Infrastructure .

Cheryl D'Hollander is no longer comanager of Columbia Large Cap Index (NEIAX), Columbia Mid Cap Index (NTIAX), Columbia Small Cap Index (NMSAX), and RiverSource Small Company Index . Alfred Alley will remain as the sole manager of the funds.

On Aug. 20, 2010, ActivePassive Small/Mid Cap Growth  will change its name to ActivePassive Small/Mid Cap. The fund's new investment strategy allows the management team to invest in growth or value companies.

Editorial director Laura Lutton, senior analyst John Coumarianos, and fund analyst David Falkof contributed to this report.