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The Case for Concentrated Funds
Tweet Share on Facebook November 6, 2009 CommentThe famous volatility of concentrated stock funds is paying off big time, at least for now. So far this year, stock funds with fewer than 40 holdings have made a strong rebound. With an average return of 25 percent, they are beating funds with more than 40 stocks, which had returned an average of 21 percent as of October 31, according to Morningstar.
Over the long run, however, there is no clear winner between concentrated funds and more diversified funds that spread their bets among a larger number of stocks, says Karen Dolan, director of fund analysis at Morningstar. According to Morningstar data, the average five-year annualized return for funds with 40 or fewer stocks is 1.06 percent, very close to the 0.91 percent return for funds with more than 40 stocks.
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TSP's Mutual Fund Window Gets Icy Reception
Tweet Share on Facebook November 6, 2009 Comment (2)With the passage of tobacco regulation earlier this summer, Congress closed a number of doors. Several months later, regulators are deciding whether to open a window.
At a hearing Tuesday, members of the House discussed the possibility of allowing federal employees to put their retirement money in mutual funds. This consideration stems from the 2009 Family Smoking Prevention and Tobacco Control Act, which authorizes a so-called mutual fund window for the Thrift Savings Plan.
As part of the tobacco bill, Congress gave the administrators of the TSP, which is essentially a 401(k) plan for federal employees, the option to allow participants to invest in preapproved mutual funds. But given the icy reception the concept received from lawmakers and union representatives alike on Tuesday, it appears unlikely to gain much traction.
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Retail Investors Get Their Day in High Court
Tweet Share on Facebook November 3, 2009 CommentSome mutual fund investors fed up with what they believe to be excessive fees had their day in court Monday—the Supreme Court. In oral arguments in the case of Jones v. Harris Associates, retail shareholders of Oakmark Funds said the fund's adviser, Harris Associates, charged them fees that were twice as high as they charged other types of investors, such as institutional customers, but provided essentially the same services.
[Congress is considering a proposal that could change the way funds do business with new investors.]
The core legal issue in the case is whether Harris Associates, as the adviser to Oakmark Funds, breached its fiduciary duty under the Investment Company Act of 1940 by charging excessive fees. The shareholders were, in effect, asking the court to consider whether the adviser committed a breach of its fiduciary duty when the board of Oakmark Funds voted for what the plaintiffs consider an overly generous fee structure. The ICA was amended by Congress in 1970 to include a rule regarding fiduciary duty for mutual funds related to compensation, but exactly what constitutes such a duty was never defined. The case highlights the question of whether or not courts should intervene in issues related to executive compensation.
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