Vanguard Fires AllianceBernstein at U.S. Growth Fund

Vanguard finally decided it was time to intervene at the woeful  Vanguard U.S. Growth  (VWUSX).

In an effort to turn around more than a decade of futility, Vanguard has replaced  AllianceBernstein (AB), one of the two subadvisors of U.S. Growth, the family's worst-performing equity fund over the trailing 10- and 15-year periods ended Oct. 6, 2010. While the other subadvisor, William Blair & Company, remains, the manager assigned to that firm's portion of the fund is changing, too.

Wellington Management and Delaware Investments will split the portion of the $3.7 billion portion of U.S. Growth fund that AllianceBernstein had run since 2001. At least initially, Wellington, Delaware, and William Blair will each run one third of the fund.

Andrew Shilling, who has run the  Hartford Growth  fund for nearly a decade, will run Wellington's slice of the fund. If his strategy at Hartford Growth is any guide, Shilling will pick 50 to 80 large-cap stocks that he thinks have above-average growth prospects. He won't pay much attention to index sector weightings and will turn his slice of the portfolio over close to once a year. The approach has been relatively successful at Hartford Growth. From Shilling's April 2, 2001, start through Oct. 6, 2010, Hartford Growth's 1.5% annualized gain edged the typical large-growth fund and the Russell 1000 Growth Index, albeit with above-average risk.

A well-traveled team from  Delaware US Growth (DUGAX), lead by veteran Jeff Van Harte, will steer Delaware's third of the fund. The squad follows a lower-turnover, more concentrated, and valuation-conscious approach that typically assembles a portfolio of 25 to 35 stocks with strong competitive advantages and cash flows. The fund has turned in mixed results since Van Harte and company arrived in April 2005. Its 2.9% annualized gain through Oct. 6, 2010, lags the Russell 1000 Growth's 3.3% advance but beats the typical large-growth fund's 2.4% gain.

The Delaware team, which includes Daniel Prislin, Christopher Bonavico, and Christopher Ericksen, has achieved better absolute and relative results at the mid-cap-focused  Delaware Select Growth (DVEAX). It also beat the typical large-cap growth fund and Russell 1000 Growth Index in seven years from 1998 to 2005 at the old Transamerica Premier Equity, which was merged away in 2009.

In the William Blair portion of the fund, James Golan and Tracy McCormick, who have been with the firm since the early 2000s, will take over from John Jostrand when he steps down at the end of the year. Jostrand has run about a third of U.S. Growth since April 19, 2004, but is going to focus on his other fund,  William Blair Growth (WBGSX). The firm telegraphed this change in a filing earlier this year.

Vanguard removed AllianceBernstein due to an ''accumulation of circumstances,'' said Dan Newhall, head of the family's portfolio review group that selects and monitors active managers. Newhall would not enumerate those circumstances, but AllianceBernstein and its large-cap growth team in particular have been in flux in recent years. There have been numerous manager changes on AllianceBernstein's slice of the fund, most recently the June 30, 2010, retirement of Jim Reilly after just two years at U.S. Growth. There also has been turnover in the analyst and executive ranks at the firm, as well as continual tinkering with the tools and methods of its growth research effort.

All of that, coupled with poor performance of the fund during AllianceBernstein's tenure, made the fund long overdue for a change. U.S. Growth lost a cumulative 19.4% from the June 2001 start of AllianceBernstein's tenure through the end of September 2010 while the typical large-growth fund shed more than 2% and the Russell 1000 Growth actually gained nearly 4%.

Newhall doesn't expect the overall characteristics of the fund to change dramatically, though it will own more stocks and be less concentrated in its top 10 holdings. Vanguard was able to move the portfolio to the new managers without incurring any capital gains, so the change won't cause an increase in tax costs. The fund's 0.49% expense ratio could increase to 0.53%, though.

Report Outs Ivy Asset Strategy as Flash Crash Culprit
On Oct. 1, the Commodity Futures Trading Commission and the Securities and Exchange Commission issued their joint report on the May 6, 2010, "flash crash" and (without naming the fund) put  Waddell & Reed's   Ivy Asset Strategy (WASAX) at the center of the crisis.

The SEC account criticizes the actions of a "large fundamental trader (a mutual fund complex)," which sources have identified as Ivy Asset Strategy, saying that its large, quickly executed sale of $4.1 billion worth of E-Mini S&P 500 futures contracts (as hedges against equity positions) into an already volatile market triggered the flash crash.

The report specifically criticizes the fund's decision to execute this trade via an automated exchange algorithm which placed orders at a preset rate without regard to price or time, and without any human involvement to monitor the market's ability to handle the trade. The agencies note that only two single-day sell programs of equal or larger size occurred in the 12 months prior to May 6--and one was executed by the same fundamental trader. In that instance, however, the trader used a combination of manual trades over the course of a day, as well as automated exchange algorithms. The report says that trade was spread out over five hours, while the May 6 trade was executed in just 20 minutes.

Ivy Asset Strategy manager Michael Avery told the The Wall Street Journal in an interview prior to the report's release that the fund's hedging decision last spring was prompted by "the heat of the financial crisis" and worries that the "concerns of policymakers weren't being addressed."

Still, a number of questions remain, including why the trade order was executed in this manner, why Waddell & Reed decided to make the trade on that day and time given that the concerns Avery cited had been present for awhile, and whether the $23 billion fund is too big to make these sorts of trades in the E-Mini S&P 500 futures market. To be sure, some market participants take issue with the report's conclusion that a single trade brought the market to its knees on May 6, without assigning any responsibility to the exchanges themselves. Regardless, the report leaves unanswered questions about market stability.

SEC Charges Two Former State Street Execs
The SEC has charged two former  State Street (STT) executives--John Flannery, former CIO, and James Hopkins, former head of product engineering for North America--with misleading investors about exposure to subprime securities in State Street's Limited Duration Bond fund. The SEC alleges the pair marketed the fund to certain investors as an enhanced cash strategy that was an alternative to a money market fund despite the fact that by 2007, the fund's holdings were primarily subprime securities and derivatives.

The SEC alleges that State Street provided more complete information about the fund's subprime exposure to certain investors, including those that were clients of the firm's internal advisory groups.

Earlier in 2010, State Street settled a related case with the SEC and agreed to repay investors more than $300 million, in addition to also settling private investor lawsuits.

OppenheimerFunds Loses Equities CIO to BlackRock
Chris Leavy, who had served as OppenheimerFunds chief investment officer of equities, is leaving the firm. He has joined  BlackRock, Inc. (BLK) as chief investment officer for U.S. fundamental equity, a new role.

Art Steinmetz, the longtime OppenheimerFunds portfolio manager who had served as CIO of fixed income, will now become CIO of the entire firm. He'll continue to manage  International Bond (OIBAX),  Global Strategic Income (OPSIX), and  Global Allocation (QVGIX) funds.

Leavy managed  Oppenheimer Value (CGRWX) to mostly good results from 2001 through 2008. He was named equities CIO in early 2009 as part of a big reshuffling at the firm after the blowup of  Oppenheimer Core Bond (OPIGX) and the arrival of a new CEO, Bill Glavin.

In other firm news, George Evans, who had been director of international equities and comanager of  International Growth (OIGAX) and International Diversified (OIDAX), will become director of equities. Krishna Memani, manager of Core Bond since April 2009, has been named director of fixed income. Both Evans and Memani will continue to manage their funds.

Van Eck CIO Passes Away
Derek van Eck, principal and chief investment officer of Van Eck Associates Corporation, passed away on Sept. 29 at the age of 46. He had been with the firm since 1993 and had served as portfolio manager of  Van Eck Global Hard Assets (GHAAX) and Van Eck's Hard Assets hedge funds. Portfolio management duties will be taken over by Shawn Reynolds and Charles Cameron, who will be supported by a team of seven analysts and traders. Derek van Eck's father, John van Eck, founded the firm in 1955, and his brother Jan serves as principal and director.

The fund industry lost another titan when Hakan Castegren, lead manager of  Harbor International (HAINX) and two-time Morningstar International-Stock Manager of the Year, passed away on Oct. 2. Morningstar wrote about his passing here.

Two Firms Appoint New Research Heads
Dimensional Fund Advisors, which makes its funds available to individual investors via fee-only advisors, announced that Gerard O'Reilly has been appointed head of research, effective immediately. Eduardo Repetto, DFA's prior head of research, will concentrate on his roles as co-CEO and chief investment officer of the firm.

Royce & Associates, advisor to the Royce Funds, also recently announced that David Nadel, portfolio manager on Royce's Global Select ,  Global Value , and European Smaller-Companies  funds, has been named the firm's director of international research. Prior to joining Royce in 2006, Nadel was a portfolio manager at Neuberger Berman and a senior analyst at Pequot Capital Management.

AllianceBernstein Acquires SunAmerica Unit
 AllianceBernstein (AB) recently announced its acquisition of SunAmerica's alternative investments group, which manages hedge funds and private equity funds. While the acquisition won't immediately impact AllianceBernstein's mutual fund business, CEO Peter Kraus noted that this represents the latest step in the firm's move to expand its alternative investing capabilities.

Wells Fargo Manager Changes
Jay Mueller, who managed  Wells Fargo Advantage Government Securities  and its predecessor at Strong Capital Management since 2004, is no longer managing the fund. Michael Bray, who has been on the fund since 2005 (the year it was acquired by Wells), and Christopher Kauffman, who came on board Oct. 1, 2010, will manage the fund.

Kauffman has also been named to the management team at Wells Fargo Ultra Short-Term Income, where he joins Jay Mueller, James Newton II., and Thomas Price.

Also, Edward Rick is no longer part of the management team for Wells Fargo Advantage Traditional Small Growth (EGWAX).

Etc.
Vanguard lowered the minimum initial investments for the low-cost Admiral shares of more than 50 active and passive funds.

On Oct. 1, AQR Capital Management launched a new fund, AQR Risk Parity. It aims to diversify risk by investing across a wide range of assets, with an emphasis on providing more consistent positive total returns. The fund's expense ratio is 1.20%.

American Century announced that Charles Ritter, who has been managing  American Century Capital Value  and  American Century Large Company Value (ALVIX) since 1999, will retire at the end of this year. He will step down from the funds on Nov. 30, 2010. Current comanager Brendan Healy will remain in place and will be joined by Matt Titus, who has been an analyst for the funds.

 Threadneedle Emerging Markets  has new managers to go with its new name. The fund is still subadvised by Threadneedle Asset Management, but it is now called Columbia Emerging Markets Opportunity and is managed by Vanessa Donegan and Rafael Polatinsky. Former managers Julian Thompson and Jules Mort, who had comanaged the portfolio as a duo for seven years, have left Threadneedle.

Goldman Sachs has agreed to waive the management fee for  Goldman Sachs Short Duration Government (GSSDX) and Goldman Sachs Ultra-Short Duration Government  by 0.05%.

 Akros Absolute Return  reorganized into Quaker Akros Absolute Strategies as of Oct. 1. Akros Capital will continue to serve as subadvisor to the fund.

The board of trustees of BlackRock Lifecycle Prepared Portfolio 2010  approved a proposal to close and liquidate the fund. The fund will close on Oct. 15 and liquidate on Dec. 10.

The board of Morgan Stanley Institutional approved changing the name of Morgan Stanley Institutional Equity Growth  to Morgan Stanley Institutional Opportunity, and Morgan Stanley Institutional Global Growth (MGGIX) to Morgan Stanley Global Opportunity.

NFJ Investment Group was added as a subadvisor to Northern Multi-Manager International Equity (NMIEX). Ben Fischer, Paul Magnuson, Thomas Oliver, R. Burns McKinney, and L. Baxter Hines will manage NFJ's portion of the fund.

Nashira Wynn is no longer on the Delaware Management team that subadvises Northern Multi-Manager Large Cap . D. Tysen Nutt Jr., Anthony Lombardi, Robert Vogel Jr., Nikhil Lalvani, and Kristen Bartholdson continue to manage Delaware Management's sleeve of the fund.

Legg Mason Capital Management Research  will change its name to Legg Mason Capital Management Disciplined Equity Research, effective Oct. 1, 2010. The fund's benchmark will change from the S&P 500 Index to the Russell 1000.

The board of Bryce Capital Growth  and Bryce Capital Value  approved a proposal to reorganize the funds into the Dblaine Fund. The funds will solicit shareholder approval of the reorganization in then next 30 to 60 days.

Robert Corner is no longer part of the management team for RidgeWorth Short-Term Bond , RidgeWorth Short-Term US Treasury Securities , RidgeWorth Ultra-Short Bond , and RidgeWorth US Government Securities Ultra-Short Bond .

Fernando Grisales is no longer a member of the team managing AllianceBernstein Global Bond (ANAGX).

Austin Hawley has replaced Bill Dierker as an assistant portfolio manager for Diamond Hill Strategic Income (DSIAX).

Pending shareholder approval, Ivy Mortgage Securities  will merge into Ivy Bond (IBOAX).

Associate director of fund analysis Dan Culloton and mutual fund analysts Kailin Liu, Janet Yang, Rob Wherry, and David Kathman contributed to this report.