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Fund Times

More Top Small-Value Funds to Close

Plus, Edward Johnson steps down from Fidelity fund board, and more.

More small-value funds with strong records,  American Beacon Small Cap Value  and  Heartland Value Plus , will soon close to new investors.

Their closures follow the shuttering of a number of other small-cap funds in recent weeks and coincide with more than two years of strong performance and rising valuation levels for the Russell 2000 Index and other small-cap benchmarks.

American Beacon said in a May 2 regulatory filing that it would close its $3.6 billion in assets Small Cap Value fund to new investors after it breaks the $4 billion in assets barrier. The fund has had more than $140 million in inflows this year as of March 31 and has gained 6.7% this year, better than nearly 70% of the small-value category and the Russell 2000 Value's 4.8% gain.

The fund, a former Analyst Pick, has gained 10.5% per year over the past 10 years through May 4 versus the Russell 2000 Value's 8% annualized gain.

American Beacon closed the fund from 2005 to September 2008 due to capacity constraints at some of its six subadvisors.

Meanwhile, Heartland Value Plus, a $2.2 billion fund that focuses on small, dividend-paying companies, announced it will close to most new investors on May 16.

The fund, which has gained 13.1% annually over the past 10 years and beat 99% of the small-value category, has had $776 million in inflows for the past 12 months ended March 31.

The firm said in a regulatory filing that it decided to close the fund after considering its size and the availability of small-cap stocks that meet the fund's investment criteria. The fund's size played a bigger role in the closing than the fund's managers' ability to find values, the company said in an e-mail response to questions. Still, small-cap indexes are near all-time highs and the number of undervalued companies that appear attractive is lower than it was a couple of years ago, the firm said. The prospective price/earnings ratios of the Russell 2000 and Russell 2000 value have gone from the high single digits at the March 2009 nadir of the market to the mid- to high-teens as of March 31, 2011. The Russell 2000 has gained 144% cumulative and the Russell 2000 Value 140% cumulative from March 9, 2009, through May 4, 2011.

 Royce Micro-Cap  and  Royce Premier  also said they will remain open only to existing investors and certain preapproved relationships.

In its most recent quarterly shareholder letter, Boston-based GMO, which has a good long-term record valuing asset classes, said it refuses to own small-cap stocks at current valuation levels. The firm has been worried about small-cap valuations since at least mid-2010.

"On our data, U.S. small cap stocks are now as expensive as we have ever seen them," the firm wrote. "Although the S&P 500 price index is still some way below its all-time high, U.S. small caps are within spitting distance of theirs: a high that was last reached with a booming global economy, strong employment, and a debt-driven consumption binge in full swing." (Click here for the full letter. Registration is required.)

Closed to All Inv Closed to New Inv Fund Size (in $Bil) Allianz NFJ Small Cap Value Inst  Yes Yes 8.31 Royce Low Priced Stock Svc  No Yes 5.38 Lord Abbett Small-Cap Value  No Yes 4.55 American Beacon Small Cap Value Adv  * No No 3.69 Perkins Small Cap Value  No Yes 3.47 Artisan Small Cap Value Investor  No Yes 3.38 Buffalo Small Cap  No Yes 3.21 DWS Dreman Small Cap Value A  No Yes 3.07 Sentinel Small Company A  No Yes 2.79 JPMorgan Small Cap Equity A  No Yes 2.61 *This fund will close when $500 million of new net assets are invested.

 

Edward Johnson Steps Down From Fidelity Fund Board
Fidelity head Edward Johnson stepped down as chairman of the board that oversees his firm's equity and high-yield funds. Not surprisingly, Johnson, who was an outspoken critic of SEC proposals requiring independent chairpersons for fund boards, has left his chairmanship to another insider, James Curvey. Curvey, a 28-year Fidelity veteran, is vice chairman of FMR, the parent company to the Fidelity funds, and formerly served as its president and COO. Ron O'Hanley, who became Fidelity's president of asset management in 2010 after a stint at BNY Mellon, also joined the board. A Fidelity spokesperson said Johnson left the fund board to pay closer attention to his duties as Fidelity's chairman and CEO. He will continue to serve on a committee that advises the board's independent directors. Fidelity says Johnson remains "fully engaged in running the company and has no plans to retire."

FINRA Fines Wells Fargo Advisors
The Financial Industry Regulatory Authority fined Wells Fargo Advisors $1 million for not providing key investment information to clients fast enough.

Part of the settlement involves not delivering mutual fund prospectuses within the one to three days of fund purchase as required by federal law. FINRA said that Wells Fargo Advisors customers received their prospectuses from one to 153 days late. Customers also didn't receive information about arbitrations and complaints involving Wells Fargo Advisors representatives within the required timeframe, FINRA said.

Around 934,000 customers who bought mutual funds in 2009 were affected. Wells Fargo Advisors was created from the retail brokerage of Wachovia Securities, which  Wells Fargo Company  bought in 2008. Wells Fargo Advisors sells a long list of mutual funds, including Wells Fargo's own Advantage funds. The breakdown of the fund families affected was not disclosed.

Wells Fargo Advisors did not correct the situation even after its third-party delivery service reported that its customers had not received the prospectuses on time, FINRA said.

For its part, Wells Fargo Advisors said in a statement that it has implemented procedures to ensure that laws governing delivery of information to customers will be adhered to.

Harbor Launches Two Bond Funds
Harbor launched Harbor Convertible Securities  and Harbor Emerging Markets Debt  on May 1, 2011.

Harbor Convertible Securities invests in convertible securities of both domestic and international companies, while focusing on convertible bonds of junk-rated issuers. The fund is subadvised by Shenkman Capital Management, and managed by Raymond Condon. Condon does not currently manage any other mutual funds, but he manages a sleeve of  Vantagepoint Diversifying Strategies  with Mark Shenkman. The fund's expense ratio is currently 0.85%.

Harbor Emerging Markets Debt invests in bonds and derivatives that are economically tied to emerging markets, or denominated in emerging-markets currencies. The fund uses a top-down approach to allocate assets among various emerging-markets countries. Stone Harbor Investment Partners subadvises the fund; Peter Wilby, Pablo Cisilino, David Oliver, Christopher Wilder, James Craige, and Thomas Flanagan manage the fund day-to-day. The team also manages Stone Harbor Emerging Markets Debt , which has returned 10.5% annualized since its August 2007 inception. Harbor Emerging Markets Debt currently has an expense ratio of 1.05%.

Aston to Team With Gundlach
Aston registered to launch ASTON/DoubleLine Opportunistic Bond on April 29, 2011. The fund will be subadvised by DoubleLine Capital and managed by Jeff Gundlach, Philip Barach, Bonnie Baha, and Luz Padilla. The managers can invest in any type of bond (including inverse floaters and interest-only and principal-only securities, which feature in  DoubleLine Total Return ), and can also invest without limit in junk bonds. The fund's duration will be between two and eight years. The N shares of the fund will cost 0.95%, while the I shares will cost 0.70%.

DoubleLine Capital currently offers four mutual funds and subadvises only one other fund, RiverNorth DoubleLine Strategic Income . DoubleLine Capital launched its first mutual fund, DoubleLine Total Return Bond, in April 2010, after Gundlach and his team left TCW. The firm currently has $6.9 billion in mutual fund assets under management (including the RiverNorth fund). In particular, DoubleLine Total Return Bond is now $6.4 billion, larger than the $5.3 billion  TCW Total Return Bond , Gundlach's former fund.

Janus Venture to Reopen
 Janus Venture  will reopen to new investors on May 6, 2011. The fund closed in 1991 due to capacity concerns. It currently has $1.3 billion in assets, the highest level since its historical low of $701 million in 2008. Current managers Chad Meade and Brian Schaub have run the fund since July 2010. Janus Capital will also waive any portion of the fund's expense ratio above 1.05% until Feb. 1, 2012.

 

Three Major Money Market Providers Endorse NAV Buffer
Fidelity, Schwab, and Wells Fargo endorsed the addition of a NAV buffer to money market funds in a letter to the SEC on May 3, 2011. The NAV buffer would be a portion of the fund's income set aside to grow over time. While holding this income back would reduce yields in the short run, it would also help protect the money market fund's NAV in the event of large redemptions.

According to the letter, a NAV buffer "would address both liquidity and credit concerns that federal financial regulators have raised." Specifically, holding back a portion of the fund's income would allow the fund company to sell some securities at a loss in order to meet redemptions, without dropping the fund's NAV. A NAV buffer would also minimize the impact on the fund if underlying securities suffered losses due to credit concerns; the money held aside would let the fund bear more credit-related losses. Finally, a NAV buffer would make a run on the fund less likely. As shareholders redeemed, the buffer amount per shareholder would increase; there would be less risk of large accounts exiting the fund, leaving a much smaller asset base (and lower redemption amount) for remaining investors. Implementation of a NAV buffer would be relatively simple, according to the letter.

Adopting this policy could achieve NAV stability, which many consider to be a key characteristic of money funds. Other proposals for money market reform, such as a floating NAV, may not be able to meet this goal. A policy to support NAV stability would also benefit large money fund distributors such Fidelity, Schwab, and Wells Fargo, who could potentially incur reputational risk for returning less than $1.00 in their money market funds.

Etc.
Rob Bloemker officially left the management team of Putnam Global Income ,  Putnam Diversified Income ,  Putnam Income ,  Putnam Absolute Return 100 ,  Putnam Absolute Return 300 , and  Putnam American Government Income .

IronBridge Frontegra Small Cap , IronBridge Frontegra SMID , and IronBridge Frontegra Global  replaced distributor Frontegra Strategies with Quasar Distributors. The fund names are now IronBridge Small Cap, IronBridge SMID Cap, and IronBridge Global.

BlackRock Bond Allocation Target Shares  liquidated on April 29, 2011.

Benjamin Ram is no longer a portfolio manager on  Oppenheimer Main Street Small & Mid Cap  . The fund is now managed by existing managers Matthew Ziehl and Raman Vardharaj, as well as new manager Raymond Anello.

 Invesco Dividend Growth Securities , Invesco Global Advantage ,  Invesco Global Dividend Growth Securities , Invesco Technology Sector , and  Invesco Value  will limit sales of shares to new investors starting May 9, 2011.

Mark Baribeau is no longer on the management team of  Loomis Sayles Global Equity and Income . The fund is now managed by Daniel Fuss, David Rolley, and Warren Koontz.

Ido Cohen replaced Jonathan Mueller as co-portfolio manager on Invesco Leisure . The fund is now managed by Cohen and existing manager Juan Hartsfield.

Robert Potard replaced David Paddock as co-portfolio manager on Invesco Utilities  and Invesco Van Kampen Utility . The funds are now managed by Potard and existing manager Meggan Walsh.

Yoginder Kak joined the management team of  Invesco Van Kampen Value Opportunities . The fund is now managed by Kak, Jason Leder, Devin Armstrong, Kevin Holt, Matthew Seinsheimer, and James Warwick.

James Trowbridge is no longer on the management team of Invesco Select Real Estate Income . The fund is now managed by Joe Rodriguez, Jr., Mark Blackburn, Paul Curbo, and Darin Turner.

Bridgeway's John Montgomery no longer manages  Calvert Large Cap Growth . The fund is now subadvised by Atlanta Capital Management, and managed by Richard England, William Hackney III, and Paul Marshall. The fund is also slated to merge into  Calvert Equity , also run by the Atlanta Capital team.

B shares of  Managers Cadence Capital Appreciation  and  Managers Cadence Mid-Cap  will close on June 30, 2011.

John Addeo, Thomas Pedulla III, and Leo Saraceno are no longer on the management team of MFS Diversified Income . The fund is now managed by James Swanson, Richard Gable, Matthew Ryan, Jonathan Sage, Geoffrey Schechter, David Cole, and new manager William Adams.

Debra Jelilian and Vincent Costa are no longer on the management team of USAA Extended Market Index . The fund is now managed by existing manager Edward Corallo, as well as new managers Christopher Bliss, Jennifer Hsui, and Creighton Jue.

Michael Roberge officially left the management team of  MFS Research Bond . The fund is now managed by Robert Persons, Jeffrey Wakelin, and Joshua Marston.

James E. Grefenstatte, head of the core/growth equity team at Federated, has replaced Carol R. Miller as senior portfolio manager of  Federated Capital Appreciation . Miller had been on the fund since Nov. 30, 2005, and is no longer with the firm. Dean Kartsonas will continue to serve as portfolio manager on the fund.

Daniel Thelen is no longer on the management team of  Loomis Sayles Small Cap Value (LSCRX). The fund is now managed by Joseph Gatz.

ValueLine filed to launch ValueLine Tax Exempt on July 1, 2011. The fund will invest at least 80% of assets in municipal bonds, taking into account credit quality and yield potential.

Russell US Quantitative Equity (REQAX) added PanAgora Asset Management as a subadvisor. The fund is now subadvised by Aronson Johnson Ortiz, Jacobs Levy Equity Management, INTECH Investment Management, Numeric Investors, and PanAgora Asset Management.

Robert Kuharic no longer manages Russell US Small & Mid Cap . The fund is now managed by Jon Eggins.

T. Rowe Price no longer subadvises Russell Emerging Markets (REMAX). The fund is now subadvised by AllianceBernstein, Arrowstreet Capital, Genesis Asset Managers, Harding Loevner, UBS Global Asset Management, and newly added subadvisors Delaware Management Company and Victoria 1522 Investments.

Russell Tax-Managed US Large Cap (RTLAX) replaced Turner Investment Partners with Sustainable Growth Advisers as a subadvisor of the fund. The fund is now subadvised by Sustainable Growth Advisers, Sands Capital Management, Palisades Investment Partners, JPMorgan Investment Management, and Armstrong Shaw Associates.

Managers AMG Chicago Equity Partners Midcap  and Managers AMG Chicago Equity Partners Balanced  closed their B shares to all investors on May 1, 2011.

BlackRock filed to launch BlackRock International on May 2, 2011. The fund will mainly invest in stocks of medium and large companies around the world (including the United States), and can also up to invest 25% of assets in global bonds.

Madison Investment Advisers filed to launch NorthRoad International on July 1, 2011. The fund will invest in companies outside the United States with a market cap of $3 billion or more. The fund will be subadvised by NorthRoad Capital Management and managed by Charles Saunders, James Shore, and Raymond Vars. When the fund launches, it will take the ticker of Madison Mosaic Small/Mid Cap .

Forward Management launched Forward Emerging Markets Corporate Debt  on May 3, 2011. The fund will invest mainly in emerging-markets corporate debt, and will be subadvised by SW Asset Management. David Hinman and Raymond Zucaro will manage the fund.

Oppenheimer filed to launch Oppenheimer Short Duration . The fund will be actively managed and invest in investment-grade short-term debt and money market instruments. Carol Wolf and Chris Proctor will manage the fund.

Aberdeen Asset Management launched Aberdeen Emerging Markets Debt Local Currency  on May 2, 2011. The fund will invest at least two thirds of assets in emerging-markets bonds denominated in local currencies. Brett Diment will lead the team responsible for managing the fund.

Senior mutual fund analyst Christopher Davis, and mutual fund analysts Harry Milling, Josh Koeck, and Ryan Leggio contributed to this report.

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