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SEC Examining Use of Derivatives by Funds
Tweet Share on Facebook March 31, 2010 Comment (2)Last week, the U.S. Securities and Exchange Commission announced that it will begin evaluating the use of derivatives by mutual funds and exchange-traded funds. A derivative is essentially a security whose price is derived from one or more underlying assets, and the term is used to describe a range of activities including futures trading and default swaps. The SEC says that until the investigation has concluded, it will defer any new requests for ETFs that would make substantial investments in derivatives. The number of funds that engage in derivatives trading is growing, and the SEC wants to assess the risks associated with these funds.
[See U.S. News’s list of the Best Mutual Funds for 2010, and use our Mutual Fund Score to find the best investments for you.]
For most investors, derivatives can be difficult to understand because of their complexity. “Derivatives are a sort of instrument that give market exposure without actually being a direct investment in that market,” says Eric Jacobson, Morningstar’s director of fixed-income research. “Whether it’s a bond, a stock, a currency, or an interest rate, a derivative generally gives you price exposure to something without you actually having to own that item.”
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What the Supreme Court’s Decision Means for Fund Investors
Tweet Share on Facebook March 30, 2010 CommentAfter years of litigation, investors looking to slap their fund providers with excessive fees lawsuits are more or less right back where they started. In a unanimous decision in Jones v. Harris Associates, the Supreme Court has kicked the case back to the Seventh U.S. Circuit Court of Appeals and essentially ordered the appeals court to adopt the decades-old Gartenberg standard. But what does that mean for investors?
[See U.S. News’s list of the Best Mutual Funds for 2010, and use our Mutual Fund Score to find the best investments for you.]
The case in question involves plaintiffs who are shareholders in the Oakmark funds, which are run by Harris Associates. The Oakmark shareholders say that at the time they filed the suit in 2004, they were being charged management fees nearly twice as high—0.88 percent vs. 0.45 percent—as those assigned to Harris’s institutional clients.
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Investing in Ethics
Tweet Share on Facebook March 25, 2010 CommentFord, General Electric, and Pepsi are among the world's most ethical businesses, according to a new report from the Ethisphere Institute, a corporate governance think tank based in New York.
[See U.S. News's list of the Best Mutual Funds for 2010, and use our Mutual Fund Score to find the best investments for you.]
Companies that "go green" or divest from Sudan tend to get a lot of attention, but those that undertake more subtle efforts to promote transparency and strong corporate cultures often fly under the radar of socially responsible investors. With that in mind, Ethisphere has picked out 100 companies that do a superior job in the area of corporate governance.
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Fund Manager: Congress Is (Almost) Always Wrong
Tweet Share on Facebook March 25, 2010 Comment (5)Mutual fund manager Eric Singer predicts that healthcare reform will eventually harm the stock market. "Long term, I think that the bill is bad for the country because it raises taxes a lot and forces us to spend in a very inefficient way on healthcare," he says.
[See Healthcare Reform: What Does It Mean for Investors?]
But then again, Singer thinks that just about anything Congress does will put a damper on returns. In fact, Singer has—perhaps more than any other manager—staked his fund's fortune to that very thesis. Singer manages the Congressional Effect mutual fund, which launched in 2008. The fund's premise is this: Congress will, as far as the market is concerned, almost always get it wrong.
[See U.S. News's list of the Best Mutual Funds for 2010, and use our Mutual Fund Score to find the best investments for you.]
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Healthcare Reform: What Does It Mean for Investors?
Tweet Share on Facebook March 24, 2010 Comment (3)Investors may be wondering what effect the passage of healthcare reform will have on health-related stocks or funds with healthcare holdings. Many money managers say the jury's still out, but it seems that many companies in the healthcare sector—like pharmaceuticals and insurers—will go under the microscope as the government strives to make healthcare more affordable and available.
[See U.S. News's list of the Best Mutual Funds for 2010, and use our Mutual Fund Score to find the best investments for you.]
The biggest news for companies in the sector may be the new insurance mandate. For health insurers, this means a huge pool of new customers, but the current legislation will also aim to reform the way they do business. "They're going to have to take on more customers that they obviously wouldn't have otherwise, like customers with pre-existing conditions," says Morningstar analyst Chris Davis, who covers healthcare sector funds. "On the other hand, they're going to get over 30 million new consumers of healthcare."
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Understanding the Ongoing Money Market Crisis
Tweet Share on Facebook March 19, 2010 CommentTurned away by dismal yields, investors are continuing their mass exodus from money market funds. And as a result of a prolonged period of outflows, the money market industry's assets have potentially dipped below $3 trillion for the first time since 2007.
[See U.S. News's list of the Best Mutual Funds for 2010, and use our Mutual Fund Score to find the best investments for you.]
For investors, there's nothing particularly significant about the $3 trillion mark. But for fund providers, it's a concrete reminder that their industry is in a severe slump.
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One Year Later, Buying Binge Continues Unabated
Tweet Share on Facebook March 17, 2010 CommentThe very same week that the stock market bottomed out last year, investors began pouring money back into mutual funds. One year later, the buying binge still shows no signs of letting up.
[See U.S. News's list of the Best Mutual Funds for 2010, and use our Mutual Fund Score to find the best investments for you.]
Every week over the past year, investors have been net purchasers of mutual funds, meaning that they have invested more money than they have pulled out. Between March 12, 2008—just three days after the market hit rock bottom—and last Wednesday, mutual funds (excluding money market funds) pulled in a net total of $507 billion, according to the Investment Company Institute. The ICI puts out new fund-flow statistics each week. With the release earlier today of last week's numbers, the unimpeded buying streak has officially passed the one-year mark.
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A Safer Way to Invest in Emerging Markets
Tweet Share on Facebook March 12, 2010 CommentLouis Vuitton is, in many ways, the quintessential French company. But increasingly, the luxury brand's investors are just as concerned with fashion trends on the streets of Beijing as they are with how many Parisians are toting pricey handbags.
And they're hardly alone. For investors, emerging markets have always represented somewhat of a conundrum: Developing economies offer the chance for rapid growth, but their historical volatility isn't exactly inviting.
[See U.S. News's list of the Best Mutual Funds for 2010 and use our Mutual Fund Score to find the best investments for you.]
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Cash Hoarders May Get Chance at Redemption
Tweet Share on Facebook March 10, 2010 CommentStock funds' cash positions, measured as a percentage of total assets, have taken a nearly historic plunge, according to data from the Investment Company Institute, or ICI. Specifically, stock funds had 3.6 percent of their portfolios in cash at the end of January 2010, down from 5.7 percent at the end of January 2009.
[See U.S. News's list of the Best Mutual Funds for 2010.]
News of the drop immediately touched off speculation about whether the market's yearlong rally is running out of steam now that managers are seemingly running out of cash to spend on new stock purchases.
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@Investors: Mutual Fund Providers Add Twitter to Arsenal
Tweet Share on Facebook March 9, 2010 Comment (1)American Century recently provided its mutual fund investors with the following advice: "Keep your focus on the spot of impact. Try not to pick your head up until you have reached the midthigh level on the follow-through. Keep going with your hands until they are at shoulder level."
Investors who follow this tip may not see any extra returns on their portfolios, but they'll almost certainly improve their golf game. "The golf swing is your signature on the golf course," according to an article American Century featured last week on its Twitter account. "Most golfers spend years trying to hone their swing and develop a consistent and dependable stroke that will allow them to hit the ball in the fairway and stay out of the rough."
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