Fidelity
Unusual Fund Mergers at Fidelity
One of the dirty little tricks of the fund industry is when fund companies merge the assets of mutual funds with poor performance records into better performing funds. Fund companies know that most investors make investment decisions based on past performance, and that lousy performers are unlikely to be marketable. Merging allows fund companies remove the lousy fund from their roster while keeping investor's money in the family. But Chuck Jaffe reports on recent fund mergers at Fidelity which are unusual because the funds being merged are all top performers:
The mutual fund industry is a survival-of-the-fittest world where management companies frequently kill off their weakest offspring by merging them into their best and healthiest issues. So when one of the industry's biggest players announces plans to merge two issues into sister funds, it's no big deal.
Unless the funds have an annualized average return of more than 21 percent over the last five years, are leaders in their respective asset categories and are being merged into funds with slightly lesser results and different investment objectives. And that's precisely what Fidelity Investments is doing in its recently announced decisions to merge Fidelity Nordic (FNORX) into Fidelity Europe (FIEUX) and Fidelity Advisor Korea (FAKAX) into Fidelity Advisor Emerging Asia (FEAAX).
The move is interesting for investors because observers believe it may be a sign of things to come, with management companies opting for less specialization and more economies of scale. Investors may also take it as a sign that there's little reason to go for extreme niche offerings."
This could be an acknowledgment that super-targeted funds are under increasing competitive pressure from lower fee (and tradable) ETFs (exchange traded funds).
Fidelity is Having A Bad Year
A tough year at Fidelity has Kiplinger.com's Steven Goldberg wondering if the overhaul of stockpicking operations that the mutual fund giant undertook a year and a half ago might need some serious tweaking.
I don't think the wheels are falling off at Fidelity. But plainly some mid-course corrections are in order for the huge revamping of the stockpicking operation that Fidelity launched 18 months ago. Someone high up at Fidelity may -- or may not -- agree. Stephen Jonas, who headed that restructuring, retired at the end of January. Bob Reynolds, Fidelity's chief operating officer, says Jonas, 53, wanted to spend more time with his family and that he and Jonas "came to a mutual agreement that this was a good jumping off point. Performance had nothing to do with it." Maybe so.
Longer-term performance at Fidelity hasn't been awful, but those of us old enough to remember when Peter Lynch turned Fidelity Magellan into the most famous fund in the land do long for the good old days. Over the past three, five and ten years, Fidelity's average U.S. diversified fund ranks above average -- in the 40th to 42nd percentile over each period. The trend at Fidelity's foreign funds has been disturbing. Over the past ten years, they're in the top 32% of diversified overseas funds. Over the past five years, they're in the top 40%. But over the past three years, they rank in the 73rd percentile (or the bottom 27%)."
Despite the rough patch, we still include several Fidelity funds in our MAXadvisor Powerfund Portfolios' Our Favorite Funds report. Fidelity Small Cap Growth (FCPGX) makes the cut in the small cap growth category. Fidelity Europe Capital (FECAX), Fidelity Southeast Asia (FSEAX), Fidelity Global Balanced (FGBLX), and Fidelity Spartan International (FSIIX) also get gold stars. ...read the rest of this article»
Schwab YieldPlus Investors Run After Fund Goes PriceNegative
Ultra short-term bond funds have been collapsing since early July 2007, and the carnage is going from bad to worse. Apparently investors in these funds - billed as slightly higher risk alternatives to money market funds - are liquidating in droves:
Ultra-short bond fund Schwab YieldPlus (SWYPX) is the latest victim of the credit crisis. It has fallen 16.8% for the year to date through March 26, ranking dead last in its category, and as a result, investors have been fleeing the fund. Assets have fallen precipitously from a high of $13.5 billion in June 2007 to just $2.5 billion as of March 20.
The fund's sizeable loss in recent months is certainly shocking, as ultra short-term fixed-income securities are generally perceived to be safe investments with minimal interest-rate and credit risks..."
Schwab YieldPlus has fallen almost 20% since late January 2008 - four times more than the Nasdaq drop during the same period - which is particularly troubling because the upside of the fund was slim - perhaps 1% more than an investor would get in a traditional low-fee money market fund. As Schwab's website notes, "the fund’s objective is to seek high current income with minimal changes in share price. " This is the type of fund an investor might park some cash they need in a few months to pay for college tuition or to buy a house - or just to avoid the risk of the stock market or even longer-term bond funds.
Ultra short-term bond funds' trouble started last year. The adjustable rate mortgage and corporate debt these funds invested in was far riskier than the investment grade ratings would lead one to believe. The current trouble has as much to do with the open-end fund structure itself as with continuing home-loan and other adjustable debt mark downs: when investors panic sell all at once the fund manager has no choice but to sell portfolio holdings at the same time to raise cash - often at lower prices than the fund thought the holdings were worth.
Sudden increased selling by fund shareholders leads to lower security prices of the fund holdings which drives the fund price or NAV down even more, which in turn leads to more fund investors selling. As many of these types of funds have "Free, unlimited checkwriting" and all have no redemption fees, there is nothing standing in the way of nervous shareholders getting out. Selling at large funds like Schwab YieldPlus can drive prices down for other funds that own the same or similar securities as well. Mutual funds in such a death spiral will not come back to their original price even if the hard hit portfolio holdings rebound in price.
See also:
Why You Should Worry About Your Bond Funds
Is Your Bond Fund a Ticking Sub-Prime Time Bomb?