BOSTON -- Financial Research Corp. re-analyzed the impact of changes to Lipper Inc.'s domestic equity mutual fund classifications in light of changes made in response to mutual fund company comments. The new classifications, supposed to go into use in July, have been postponed to September.
The major change to Lipper's original version of the new classifications is the addition of a "supergroup" performance category for funds, such as Fidelity's Magellan, that change investment styles over time.
Funds within the category will be compared for performance purposes only on the basis of the market-capitalizations of the stocks in the portfolio, not on investment styles. Funds classified as growth or value within Lipper's system will move little in performance rank if considered under the supergroup category, but show marked differences when considered under the narrower classifications, said Chris Brown, an FRC analyst.
Value funds will look much better under the new system: More than 50% of funds classed as value will move up at least one performance quartile under the new system over one-, three-, five- and 10-year periods. At least 50% of growth funds will fall at least one quartile under the new classification. Large-cap funds also will suffer, with about 60% dropping a quartile over all time periods.
Because fund companies can choose once a year whether they want a fund classified narrowly or in the superfund group, they may choose to use the supergroup comparison for growth funds and the narrower classifications for value funds in fund marketing materials.
This temptation to pick and choose how funds are classified might be too much for some companies to resist. Fidelity Investments, Boston, for example, will suffer somewhat under the new system because only about 12% of its domestic equity offerings are value funds. The nearly $100 billion Magellan Fund will be affected adversely by the change -- its quartile rank will drop over the one-, three-, five- and 10-year periods. Putnam Investments, Boston, also will look somewhat worse because its product line is concentrated in large-cap and multicap offerings.
On the other hand, value managers such as Neuberger Berman LLC, New York, and Franklin Distributors, San Mateo, Calif., likely will use the narrow classes to make their funds look better.
Judge rules on employment contracts
CINCINNATI -- The employment agreements between Robert Dorsey, Mark Seger and John Splain and their former employer, Countrywide Fund Services, do not prevent them from setting up a rival mutual fund administration company, a judge ruled.
In his decision, Judge Steven E. Martin of the Court of Common Pleas, Hamilton County, also reduced the non-solicitation period imposed on the three former employees to one year from two.
Messrs. Dorsey, Seger and Splain left Countrywide March 2 and filed a joint claim against the company to ascertain their rights and obligations under their employment agreements. Mr. Dorsey was president of Countrywide; Mr. Seger was chief mutual fund accounting officer; and Mr. Splain provided legal services to Countrywide's fund clients.
Countrywide counterclaimed and asked the court for an injunction preventing the three from soliciting Countrywide clients or interfering with the company's business practices or its employees until March 2000.
Mr. Martin granted Countrywide's injunction and ruled Countrywide does have triable issues regarding the employment contract agreements of the three. He set a trial date for March 27, 2000.
Michael Keating, chief operating officer of Countrywide Financial Services Inc., Cincinnati, the parent of Countrywide Fund Services, said: "Countrywide is not concerned about having competition, which is something the company has dealt with throughout its 30 year history. What we sought to prevent (in court) was the use of confidential and proprietary information from Countrywide by these three individuals in setting up their own firm. The judge granted that request."
Mr. Dorsey said he and his colleagues are securing financing to set up an as-yet-to-be-named mutual fund administration company in the Cincinnati area that will fill a niche for back-office and fund marketing support for small and midsized mutual fund companies.
Orbitex acquires fund administrator
NEW YORK -- Orbitex Management Inc. acquired American Data Services Inc., a Hauppauge, N.Y., mutual fund service provider that administers more than $5 billion in fund assets. ADS will continue to provide its existing client base of 140 mutual funds with fund administration, accounting and transfer agency services. Administration of Orbitex's family of mutual funds will be moved to ADS. Terms of the agreement were not disclosed.
Also, Timothy F. Bepler joined The Orbitex Group of Funds to manage its new health care mutual fund, which will be launched this month. Mr. Bepler was a health care company analyst at Merrill Lynch Mercury Asset Management.
Merrill Lynch officials did not return calls by press time regarding Mr. Bepler's replacement.