Funds Getting Their Groupon

While a debate rages about whether Groupon Inc. is worth $30 billion or much, much less, several of the largest mutual fund managers, like American Funds and  T. Rowe Price (TROW), have bought stakes in the firm, which filed this week for an initial public offering.

In regulatory filings, major asset managers have been showing up as recent purchasers of the hottest Internet firms that are on the brink of going public. For example, in the past year, Fidelity and T. Rowe Price bought stakes in Facebook and, along with American Funds, bought stakes in Zynga Gaming Network. The purchases are being made well after the firms have established growth records and, more than anything, may reflect the edge that these large fund companies have simply because of their size when investors are vying for a stake in hot firms.

Moreover, given the size of the Fidelity and American funds and the limited amount of shares being offered to begin with, the stakes in firms like Groupon are small, so investors should not expect these investments to make a material difference in overall returns.

For example,  American Funds Growth Fund of America (AGTHX) has the largest stake in Groupon, bought last December and valued at $175 million, according to Groupon's registration filing. As one of the biggest funds in the industry, with $162.4 billion under management, its stake amounts to about one tenth of 1 percent (0.10%) of the fund's assets.

The next largest competitor in the large-growth category,  Fidelity Contrafund (FCNKX), owns more than $100 million in Groupon. Managed by William Danoff, Contrafund also has $74 million in Facebook. Here, too, the investment amounts to a small stake in the $80 billion Contrafund. However, it's evident that Danoff has a keen interest in Internet-related stocks, as his fund's second-largest holding is  Google (GOOG).

Meanwhile, several of T. Rowe's funds, like  T. Rowe Growth Stock (PRGFX) and  T. Rowe Price Science & Technology (PRSCX), own stakes in Groupon that are each less than 0.5%.

When these stakes are combined within a smaller fund, the stake can be somewhat meaningful. For example,  Morgan Stanley Mid Cap Growth , with $402.4 million in assets, has stakes in Groupon and Zynga that together equate to 1.4% of the fund.

Longleaf Partners Trustees Invest Heavily in Funds They Oversee
As they must with their portfolio managers, mutual funds are required by the SEC to report whether fund board members invest in the funds they oversee and, if so, how much. However, the reporting ranges are different. With fund managers, the top range is "over $1 million." For members of fund boards, the top level is merely "over $100,000."

That may be a significant hurdle for some board members, but many of them are current or former high-ranking executives well into their careers, for whom $100,001 may be the equivalent of pocket change. For this reason, for many funds it is hard to know whether board members have truly meaningful investments in the funds they oversee.

Now we do know, for one family at least. At this May's annual meeting for Longleaf Partners Funds, Mason Hawkins, CEO of advisor Southeastern Asset Management, stated that the six independent trustees of the funds (plus another who's classified as an "interested" trustee because she does some operational and administrative work for the funds, though she is not otherwise affiliated with Southeastern) collectively have $19.4 million invested in the three Longleaf funds.

A Longleaf spokesperson would not provide specific investment levels for each trustee but did say the amount is spread broadly among the board members. (Hawkins is a board member as well, but his investments are not included in this total, the spokesperson said.)

Although there's no way to know what percentage of a trustee's total assets his fund investment represents, this disclosure does make clear that the board members have financial commitments to the funds they oversee well in excess of the $100,000 threshold. That increases the likelihood they'll fight for shareholders' interests. (The funds' Statement of Additional Information says only that every trustee save one has $100,000 invested in each of the three Longleaf funds and the other has between $50,000 and $100,000 in two and more than $100,000 in the other.)

Longleaf's voluntary disclosure of this figure is not unique. For example, the amount invested collectively by Putnam trustees and their families in that shop's funds is listed in the funds' annual reports. But it remains quite rare and is welcome.

Vanguard Heads to Canada
Vanguard said it will bring its low-cost investment products to Canada in the near future.

The move follows Vanguard's recent international push into Europe. This most recent move is consistent with what Vanguard CEO Bill McNabb and Vanguard have telegraphed as important priorities in the past couple of years--growing internationally and growing its fee-only advisor business, primarily through exchange-traded funds.

Most Canadian investors buy funds through financial advisors.

Vanguard believes the time is right to move north for two main reasons. The bear market between 2007 to 2009 and low bond yields have woken up Canadian investors to the big bite that fees take out of their investment returns, said Atul Tiwari, the new head of the family's Canadian business. The firm also thinks the fee-only advisors, which make up a smaller share of the Canadian financial-planning market than the United States', are poised to grow in number and market share as more advisors move away from commission-based compensation plans.

Tiwari, a former executive of BMO Financial Group in Toronto, is the first outsider Vanguard has hired to start an international office. When the family launched operations in Australia and the United Kingdom, they tapped natives of those countries who already had been working for Vanguard for a number of years. It's not clear what, if any, effect this expansion will have on U.S. fund investors, but it is worth watching.

Oaktree Plans Public Offering
Oaktree Capital Management, which runs a portion of the $2.2 billion  Vanguard Convertible Securities , is planning to list its shares on the New York Stock Exchange, according to various news reports.

The company already lists its shares on a  Goldman Sachs (GS) exchange. It plans to transfer those shares to the big board.

An Oaktree spokesperson declined comment on the news reports.

Oaktree manages more than $80 billion firmwide in mostly debt-related institutional accounts. The asset manager has at least one other connection to the mutual fund industry: It owns a minority stake in Jeffrey Gundlach's DoubleLine Capital.

PIMCO and BlackRock File New Absolute Return Bond Funds
Funds with an "absolute return" objective are still trendy.

Since the start of the year, six funds have been launched with the phrase "absolute return" in their names from the likes of  Legg Mason , MFS, and Pioneer, among others.

Now, two new bond-oriented funds from PIMCO and BlackRock are set to join in as well.

PIMCO filed to launch PIMCO Credit Absolute Return in the past week. The fund is expected to have an average duration (a measure of interest-rate sensitivity) between 0 and 6.0 years. It can invest as much as 50% in below-investment-grade securities, as well as up to 15% in equity-related instruments such as preferred stock. The fund will normally limit its foreign-currency exposure to 20% of total assets. Estimated fees were not provided in the filing.

On the same day PIMCO filed, BlackRock filed to launch BlackRock Absolute Return Global Bond. The fund will take both long and short positions in global fixed-income securities and can invest as much as 50% of assets in below-investment-grade securities, as well as up to 20% of assets in equity instruments.

Fidelity to Launch New Funds
Fidelity filed to launch Institutional and Fidelity Advantage Institutional share classes of Fidelity Spartan Emerging Markets Index and Fidelity Spartan Global ex U.S. Index Aug. 25, 2011.

Fidelity Spartan Emerging Markets Index will track the FTSE Emerging Index. Institutional shares of the fund will cost 0.15%, while Fidelity Advantage Institutional shares will cost 0.12%. Fidelity Advantage Institutional shares are generally only available to employer-sponsored retirement plans where a Fidelity affiliate provides record-keeping services.

Fidelity Spartan Global ex U.S. Index will track the MSCI ACWI ex USA Index. Institutional shares of the fund will cost 0.13%, while Fidelity Advantage Institutional shares will cost 0.10%.

Both funds will be subadvised by Geode Capital Management, who also subadvise other Fidelity index funds. The funds will be managed by Lou Bottari, Maximilian Kaufmann, Bobe Simon, Patric Waddell, and Eric Matteson.

Fidelity also filed to launch Fidelity Advantage Institutional shares of Fidelity Spartan Extended Market Index, Fidelity Spartan International Index, and Fidelity Spartan Total Market Index.

Etc.
PIMCO filed to launch PIMCO Inflation Response Multi-Asset June 2, 2011. The fund will invest in existing PIMCO funds (excluding some PIMCO funds of funds). Like some other PIMCO funds, the fund will be managed against two benchmarks. The fund's primary benchmark is the Barclays Capital U.S. TIPS Index. The fund's secondary benchmark is a blend of 45% Barclays Capital U.S. TIPS Index, 20% Dow Jones UBS Commodity Index, 15% JPMorgan ELMI+ Index, 10% Dow Jones UBS U.S. REIT Index, and 10% spot gold.

 JP Morgan  (JPM) will replace  AllianceBernstein (AB) as subadvisor to MassMutual Select Diversified International  and co-subadvisor to MassMutual Select Overseas (MOSAX). Gerd Woort-Menker, Jeroen Huysinga, and Georgina Perceval Maxwell will manage MassMutual Select Diversified International and JP Morgan's sleeve of MassMutual Select Overseas. MassMutual Select Overseas will be subadvised by JP Morgan, Harris Associates, and MFS.

Franklin Mutual Recovery  will cap its management fees to 0.50% until July 31, 2012. The fund's current expense ratio for A shares is 3.62% (among the highest in its peer group), and its management fee is 1.33%.

Andrew Holliman is no longer on the management team of  Columbia Global Equity (IGLGX) and Columbia Global Extended Alpha . Columbia Global Equity is now managed by Stephen Thornber and new manager Esther Perkins, and Columbia Global Extended Alpha is managed by new manager Stephen Thornber and Jeremy Podger.

 Fidelity Advisor Mid Cap (FMCDX) will change its name to Fidelity Advisor Stock Selector Mid Cap on Aug. 1, 2011.

Rochdale Fixed Income Opportunities (RIMOX) added GML Capital as a subadvisor. The fund is now subadvised by Seix Investment Advisers, Federated Investment Management Company, and GML Capital. GML's portion of the portfolio will be managed by Stefan Pinter, Theodore Stohner, and Maxim Matveev.

Newfleet Asset Management removed Goodwin Capital Advisers as subadvisor to Virtus Multi-Sector Fixed Income (NAMFX), Virtus Multi-Sector Short Term Bond (NARAX), and Virtus Senior Floating Rate (PSFRX). David Albrycht and Kyle Jennings, of remaining subadvisor Newfleet Asset Management, will manage the fund.

BlackRock filed to launch BlackRock Emerging Market Long/Short Equity. The fund will take both long and short positions in global equities or derivatives issued by, or economically tied to, companies in emerging markets. The fund can invest as much as 20% of assets in stocks issued by companies located outside emerging markets.

BlackRock filed to launch BlackRock Credit Opportunities. The fund invests mainly in credit-related instruments, such as corporate bonds, convertible securities, and preferred securities, with no limitation on credit quality. The fund can invest as much as 20% of assets in distressed securities, as well as up to 20% in equity instruments. The fund will use both long and short exposure to these investments.

Eaton Vance subsidiary Parametric Portfolio Associates LLC launched Parametric Structured Commodity Strategy Fund EIPCX, a nondiversified open-end mutual fund. The firm says the fund is targeted at the institutional, family office, and registered investment advisor markets. The fund seeks total return primarily through exposure to commodities-linked derivative instruments backed by a portfolio of fixed-income securities.

Senior mutual fund analyst Gregg Wolper and mutual fund analysts Kailin Liu and Susan Daker contributed to this report.