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Study Measures Trust in Fund Providers
Tweet Share on Facebook February 12, 2010 CommentAmericans have a surprising amount of trust in their mutual fund providers, according to a recent survey by the public relations firm Edelman. As part of the survey, entitled the U.S. Financial Services Trust Barometer, 59 percent of respondents said they trust fund companies.
[See Study Shows Managers Trading More Frequently.]
Overall, the survey found that fund companies are the second-most trusted financial institution. Community and regional banks, which had the trust of 79 percent of respondents, came in first. In the survey, respondents answered on a scale from 1 to 9, with 1 meaning that they had no trust at all in a particular institution. Scores of 6 and above qualified as trust.
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Study Finds Managers Trading More Frequently
Tweet Share on Facebook February 11, 2010 Comment (1)Institutional managers—who typically manage large sums of money for things like pensions and university endowments—may be trading more frequently than their clients think. A study released Tuesday by the Investment Responsibility Research Center Institute reports that institutional investment managers trade more often than they say they do, based on data collected by investment consultant firm Mercer. For the study, the IRRC Institute teamed up with Mercer to analyze about 800 investment strategies (including large-cap value, small-cap growth, and socially responsible investing) that institutional managers use to invest in the U.S. stock market and throughout the world. From June 2006 through June 2009, the study showed that about two thirds of institutional investing strategies had a higher-than-expected average turnover. The actual turnover—a measure of how often managers change holdings—among the different strategies was, on average, 26 percent higher than anticipated, and some strategies showed turnover between 150 and 200 percent more than expected, based on Mercer's data.
[See 4 Funds for the Record Books.]
The IRRC Institute focuses on corporate responsibility and investor education and has conducted other studies on issues such as corporate governance and the transparency of sovereign wealth funds. Jon Lukomnik, program director for the IRRC Institute, says the study aims to determine "whether investment managers—who are primarily dealing with long-term investors because these are institutional managers who are dealing with pensions and endowments—do what they say they're doing," he says.
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Among Emerging Markets, Interdependence Grows
Tweet Share on Facebook February 10, 2010 Comment (1)The world's often fragile network of emerging economies is perhaps more interconnected than ever, according to a recent study by the British company Ashmore Investment Management. The study's main finding is that investors in emerging markets countries are beefing up their positions in other emerging markets, even as they keep their asset flows into the developed world fairly steady.
[See The Future of China's Stimulus Efforts.]
The study looks at cross-border investments, which are investments in foreign governments and companies (for example, if someone from India buys shares of a mutual fund that invests in U.S. companies). Ashmore's numbers show that in 2001, investors in emerging markets countries put about 5 percent of their cross-border investments into securities housed in other emerging markets. By the end of 2008, that number had grown to about 25 percent. The remaining 75 percent went to developed markets.
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The Future of China's Stimulus Efforts
Tweet Share on Facebook February 5, 2010 Comment (2)The Chinese economy has so far this year given investors plenty of reasons to be spooked. For starters, there have been concerns that a tightened lending environment means that the Chinese government is winding down its massive stimulus package. Meanwhile, the Shanghai Composite Index, which is the most common way to track the performance of the Chinese stock market, has tumbled by around 8.8 percent year-to-date.
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Health Funds Get Boost From ‘Relief Rally’
Tweet Share on Facebook February 3, 2010 Comment (2)A rash of cautious optimism has propelled health funds to an encouraging start for 2010. With healthcare reform looking stalled at best, the funds have benefited from a "relief rally," says Morningstar analyst Christopher Davis.
[See How Healthcare Reform Could Affect Your Investments.]
Overall, health funds are the top-performing domestic stock fund category so far this year, according to Morningstar. To date, their 2010 returns are 2.74 percent. Financial funds are next in line, with year-to-date returns of 0.82 percent. "It's looking less likely that something is going to happen with healthcare reform," says Davis. "With that uncertainty lifted from the sector, I think that's been helpful."
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For Money Market Funds, Changes Are Mostly Cosmetic
Tweet Share on Facebook January 28, 2010 CommentThe Securities and Exchange Commission on Wednesday approved a series of proposals that will further regulate money market funds. As a result of the SEC's vote, money market funds will have to report their net asset values more frequently and meet new liquidity minimums. Regulators hope that the changes, which are mostly cosmetic, will soften the funds' image in the aftermath of a rough year.
[See Money Market Insurance Program Set to Expire.]
One of the bigger changes that the SEC approved is a new liquidity threshold for money market funds. Under the guidelines, they will be required to be able to sell at least 10 percent of their assets within one day and 30 percent within one week to meet potential redemption requests.
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The Forecast for Financials
Tweet Share on Facebook January 28, 2010 CommentIn Wednesday's State of the Union address, President Obama reiterated his plans to propose a tax on some of the country's largest banks and legislation that could limit their size and restrict certain types of trading. A wave of populism has swept through the country, and big banks seem to be bearing the brunt of citizens' frustration. Questions about what the final proposals will seek to accomplish has rattled the stock market. What does this antibanker sentiment in Washington mean for investors? Jeff Arricale, manager of the T. Rowe Price Financial Services Fund (symbol PRISX), says that uncertainty about potential regulation hasn't stopped him from investing in some of the biggest names in the banking industry. He runs a sector fund, meaning it primarily focuses on one slice of the market. The fund returned 28 percent in 2009 and an annualized 5 percent over the past decade. U.S. News spoke with Arricale to get a better understanding of the situation and who's most likely to be affected by further regulation of Wall Street. Excerpts:
[See 4 Funds For the Record Books.]
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Socially Responsible Funds Drawing Lines in the Sand
Tweet Share on Facebook January 26, 2010 Comment (1)How socially responsible is socially responsible enough? That's the awkward question that managers across the country are grappling with as they balance the need to be profitable against their investors' demands for funds that follow strict guidelines. Think of it in terms of vegetarianism versus veganism.
In the investing world, the debate plays out like this: Do fund providers merely need to employ rudimentary screens? If that's not enough, how thorough do the screens need to be before they are sufficient? These questions are important for two reasons. First, they are impossible to resolve. And second, they are being asked more and more as social, environmental, and religious funds proliferate. Last month, FaithShares Trust introduced the world's first Christian exchange-traded funds. Four of its ETFs represent specific denominations—Lutheran, Methodist, Baptist, and Roman Catholic—and one is a catch-all Christian fund. Each of the first four tracks a different proprietary large-cap index that is molded around the given denomination's guidelines as to what constitutes an acceptable investment. The Christian fund's index is a hybrid of the other four.
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The Skinny on Utilities Funds
Tweet Share on Facebook January 26, 2010 CommentUtilities mutual funds and ETFs have historically been defensive investments because they can offer yields that provide some cushion in bear markets. These funds may be an appropriate investment for those who are looking for noncyclical or defensive investments, as the demand for gas, electricity, and water utilities is constant throughout market cycles and therefore leads to consistent dividend yields. Over the past decade, many of the funds have added unregulated utilities companies and emerging-market investments to their core regulated utility holdings, increasing their volatility. Currently, there are 23 utilities mutual funds and 19 utilities ETFs, according to Morningstar. U.S. News spoke with mutual fund analysts about how investors can use these funds, how they perform in bull and bear markets, and how they respond to interest rate changes.
[See the 10 Strangest Mutual Funds.]
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Why Directors Should Have ‘Skin in the Game’
Tweet Share on Facebook January 25, 2010 CommentMutual funds whose directors have "skin in the game" significantly outperform their competitors, according to a study by Syracuse University Prof. David Weinbaum. His results confirm the commonly held belief that directors who are invested in the funds that they oversee act as better stewards than directors who don't have any money on the line.
[See Study Shows Increases in Mutual Fund Fees.]
In the study, which was published last month in the Journal of Financial and Quantitative Analysis, Weinbaum and his colleagues examine roughly 1,000 actively managed stock funds from the 25 largest fund providers. They break the funds into four groups based on the amount of ownership interest that their directors have. The funds in the bottom quartile don't have any directors with money in them, while those in the top group are marked by significant director investment. All told, the funds in the top quartile have outperformed those in the bottom one by upwards of 2 percent per year.
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