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Fund Times

Stories From 2009 That Still Mattered in 2010

Plus, Vanguard Convertible Securities goes global, and more.

A year ago we predicted we'd still be talking about  Fairholme (FAIRX) manager Bruce Berkowitz and  Doubleline Total Return (DBLTX) skipper Jeffrey Gundlach well into 2010. Neither former Morningstar Fund Manager of the Year disappointed.

The drama surrounding Gundlach's bitter divorce from former employer TCW stretched throughout 2010 and will continue in the new year. A trial date between TCW and Gundlach's new firm, Doubleline, is set for the middle of 2011 in California. Doubleline also recently disclosed in SEC filings that various federal agencies are investigating the circumstances of the breakup.

Despite the distractions, Gundlach had one of the most successful mutual fund launches in 2010. Doubleline Total Return has attracted almost $4 billion in assets since its launch in April. Moreover, it is one of the best-performing funds in the intermediate-term bond category with its 16.02% return from its inception through Dec. 22. The Barclay's U.S. Aggregate Bond Index is up 4.85% over the same period.

Meanwhile, Berkowitz has been in the news for more agreeable reasons. The $18.5 billion Fairholme is having another banner year thanks to the strong performance of General Growth Properties  and his financial-sector holdings. The performance was good enough to earn Berkowitz a nomination for 2010 Manager of the Year.

Berkowitz attracted more than $300 million to his first bond fund,  Fairholme Focused Income (FOCIX), and the fund is having a stellar year of its own. It's up 11.09% since its launch in January, compared with 5.99% for the Barclay's U.S. Aggregate index. And this is despite holding more than 20% of assets in cash all year.

We also thought Third Avenue's first bond fund was one to watch in 2010.  Third Avenue Focused Credit  attracted $1 billion in assets and climbed 14.6% so far this year, good enough to top 75% of its high-yield peers. It looks like shareholders are going to have to keep a close eye on this fund a bit longer. Jeff Gary, who helped launch it in August 2009 recently left Third Avenue. Tom LaPointe, who was named comanager in September, remains as sole skipper. (To see if Morningstar thinks LaPointe is up to the task, Premium Members can  click here for the fund's recently updated analyst report.)

Finally, we thought we would be still talking about the excessive fee lawsuit against Oakmark Funds advisor Harris Associates in 2010. Instead, in a unanimous opinion to which the fund industry responded with a big sigh of relief, the Supreme Court affirmed the longstanding Gartenberg standard for judging the appropriateness of fees. Shareholders will have to wait a bit longer to win an excessive-fee case. We aren't holding our breath.

2010 Stories That Will Matter to Us in 2011
So what stories from 2010 will we still be talking about in 2011?

  • Gundlach. Will TCW and Doubleline go to trial or will the two parties make a last-minute settlement, instead? Will the nonagency mortgage market continue to cooperate as Gundlach aims for another chart-topping year of performance?
  • Berkowitz. Can he keep it up? Will 2011 be the year Fairholme closes as it nears $25 billion in assets? Plus, what controversial holdings will Berkowitz find for his new Fairholme Allocation fund that is set to launch early next year?
  • Municipal-bond funds have been volatile recently, and most, other than short muni funds, have lost from 3% to 5% in the last few months. It's likely we will still be talking about the state of municipal finances well into 2011 as states and municipalities grapple with their rickety budgets. Stay tuned on what this news may mean for your muni-bond fund.
  • Will the $256 billion  PIMCO Total Return (PTTRX) finally see inflows taper off?
  • Will the long-awaited mega-cap/high-quality rally finally come to pass? Morningstar wide-moat stocks trail the S&P 500 by 6 percentage points this year after trailing by 9 percentage points last year.
  • Finally, will 2011 be the year the SEC finally institutes 12b-1 fee reform?

There are more topics from this year we will still be discussing well into next year. Did we miss a big one? Which ones matter the most to you?

Vanguard Convertible Fund Goes Global
 Vanguard Convertible Securities  is going global and getting two new managers to help it make the trip.

Vanguard said the fund, which primarily invests in bonds that can be converted into stocks under certain conditions, can now put as much as it wants in non-U.S.-dollar-denominated foreign securities. Previously it could put just 20% of its assets overseas. As part of the change the fund also will switch the benchmark it measures itself against from just the Bank of America Merrill Lynch All U.S. Convertibles Index to a mix of 70% of the previous bogy and 30% Bank of America Merrill Lynch Global 300 Convertibles ex-U.S. Index (hedged). The fund will hedge its currency exposure.

To facilitate the change, Vanguard has hired two additional managers from current subadvisor Oaktree Capital Management to run the international portion of the portfolio independently of longtime manager Larry Keele, who will continue to manage the domestic side of the portfolio from Los Angeles for Oaktree and Vanguard. Jean-Paul Nedelec and Abe Ofer, who both have about 20 years of portfolio-management experience, will run the global portion of the fund from New York.

Vanguard made the change at the suggestion of Keele and Oaktree to increase the fund's diversification and opportunity set, said Dan Newhall, head of the family's portfolio-review group. The fund's focus on middle-of-the-road convertibles shouldn't change. For 14 years Keele has focused on balanced convertibles, or those that are neither busted nor too equitylike (those that are trading far below or too close to their conversion values, respectively). This has given the fund a steady historical risk/reward profile relative to its category peers. Nedelec and Ofer, who have managed an international-convertibles separate account for Oaktree since 1994 and report to Keele, share the same philosophy and approach, Newhall said.

Etc.
The $1.2 billion  TFS Market Neutral  will reopen to all existing shareholders on Jan. 10, 2011. It is one of the best-performing funds in the market-neutral category over the last one-, three-, and five-year periods.

The board of the New Covenant funds, which are tied to the Presbyterian Church U.S.A., recently named Brockhouse & Cooper International a subadvisor on  New Covenant Growth (NCGFX), replacing Wellington. All the New Covenant funds are entirely subadvised, and the subadvisors receive a list stocks they can't own due to the funds' social screens.

The equity-focused Neuberger Berman International   recently reopened. With $2 billion in assets, the fund has been closed to new clients since July 2006 but has remained open to additional investments from existing shareholders. According to the firm, net new flows will be capped at $1 billion. However, Neuberger Berman reserves the right to close the strategy before reaching this threshold.

On March 1, 2010, Cohen & Steers Dividend Value  will remove its redemption fee on shares held fewer than 60 days.

The state of Nebraska selected First National Bank of Omaha to run three of the state's 529 plans.

Suzanne Hutchins joined the portfolio-management team of Dreyfus Global Real Return (DRRAX). The fund is now managed by Hutchins and James Harries.

Cohen & Steers Asia Pacific Realty Shares  will change its name to Cohen & Steer Emerging Markets Real Estate on March 1, 2011.

Dale Wettlaufer is no longer part of the management team of Legg Mason Capital Management Disciplined Equity Research .

Steven Rocco replaced Michael Goldstein on the portfolio-management team of Lord Abbett High Yield (LHYAX).

Peter Smith is no longer portfolio manager on  Lord Abbett High Yield Municipal Bond (HYMAX),  Lord Abbett National Tax-Free Income (LANSX), Lord Abbett NJ Tax-Free Income (LANJX), or Lord Abbett NY Tax-Free Income (LANYX).

Gary Lenhoff replaced Katherine Buck as portfolio manager of Wintrust Capital Small Cap Opportunity .

Russell announced multiple changes to its fund lineup. Effective March 1, 2011, Russell Global Credit Strategies (RGCAX) will be renamed Russell Global Opportunistic Credit. The fund also added DDJ Capital Management as a subadviser. Russell US Value  replaced subadviser Iridian Asset Management with Numeric Investors. Russell US Growth  replaced subadvisors Turner Investments and Delaware Management Company with Columbus Circle Investors.  Russell Global Equity (RGEAX) added Sanders Capital as a subadvisor and removed Gartmore Global Partners.

Jeffrey Geffen and Liane Rosenberg replaced Bradley Brooks as portfolio managers of Value Line Aggressive Income (VAGIX). Stephen Grant replaced Bradley Brooks as the portfolio manager of Value Line Income & Growth (VALIX).

Aston is liquidating the Aston/Fasciano Small Cap Fund  a little more than a year after its Dec. 23, 2009, launch.

Associate director of fund analysis Dan Culloton and mutual fund analyst Kailin Liu contributed to this report.

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