BOSTON -- Assets invested in funds of funds have nearly tripled since 1995 to $29 billion at the end of the first quarter, according to new data from mutual fund tracker Financial Research Corp.
Product development of new asset allocation, lifestyle, lifecycle and "best of the best" categories of funds -- all of which invest in other mutual funds -- has been intense. More than half of the funds now available are less than 2 years old.
Financial Research reported net inflows to funds of funds in 1997 was $5.4 billion, a more than $3 billion increase from net flow received in 1995. With net inflows already at $2.8 billion in the first quarter of 1998, investors are signaling their strong approval of the concept.
The Vanguard Group of Investment Cos., Malvern, Pa., has a lock on market share. Its five funds of funds hold 47% of total assets in the mutual fund category and its Star Fund, with $8 billion under management, holds almost one-third of total industry assets.
The best selling fund of funds was the T. Rowe Price Spectrum Income Fund, which had a net flow of $625 million in the 12 months ended March 31. The Fidelity Freedom 2010 Fund was second, with net flow of $574 million, followed by Vanguard's Life Strategy Moderate Fund, which had a net flow of $421 million for the 12 months.
Financial Research's report concluded that, despite wide availability, fund expenses are relatively high. Multimanager funds tend to layer management fees on top of underlying fund fees and the resulting high expense eats into returns, making the funds poor performers compared with asset class peers.
Financial Research's analysis of performance data from Morningstar Inc. found that more than half of funds of funds were in the bottom quartile of their investment objective for the 12 months ended April 30.
Holdings-based analysis offered by Nvest
BOSTON -- In an effort to differentiate itself from the pack, Nvest Cos. LP is providing holdings-based analysis of its mutual funds, rather than traditional returns-based style analysis.
Holdings-based analysis provides performance attribution and predictive risk measures much closer to those used in defined benefit plan analysis because it reviews a fund's actual holdings, rather than its returns, said Doug DuMond, senior vice president of retirement services.
BARRA RogersCasey, Berkeley, Calif., is performing the holdings-based analysis using a proprietary software program. Nvest, an investment-only 401(k) plan manager, is hoping the improved disclosure information will help persuade the full-service plan providers that offer its funds to recommend them when helping 401(k) plan clients select investment options.
Nvest officials also hope the information will help investment management consultants better place its funds within their recommendations for defined contribution plan investment options. Mr. DuMond said ultimately, plan sponsors also will find enhanced performance information very helpful in reviewing plan options themselves.
"We're taking the lead on improving disclosure of how our managers run the funds. Everyone will be forced to follow," said Mr. DuMond.
10 mutual funds ripe to be closed
WELLESLEY HILLS, Mass. -- While investment research demonstrated performance doesn't automatically suffer once a mutual fund is closed to general investment, The Kobren Insight Group nonetheless identified some funds as ripe for closure, primarily for style reasons:
* The large-cap growth American Century/Twentieth Century Ultra fund should close with $26 billion under management because its quantitative earnings momentum strategy requires liquidity to place event-driven trades.
* The $20 billion Janus Fund, classified as large-cap blend by Morningstar Inc. and growth in the prospectus, should close because it has a growth component and shares many names with three other large Janus funds, which affects stock liquidity.
* The $14 billion Janus Worldwide Fund should have been closed when its sister fund, the $4.3 billion Janus Overseas Fund, was closed recently, because of its 75% foreign equity weighting.
* The $6.4 billion Kaufman Fund, a small-cap aggressive growth fund, has outgrown its small-cap boundaries.
* The $5.3 billion PBHG Growth Fund's quant model is earnings momentum-driven and liquidity is a problem.
* The $1.4 billion Acorn Fund veered from its small-cap strategy when asset size resulted in over-diversification.
* The $26.6 billion Vanguard Windsor II, a large-cap value growth and income fund, and the $24.8 billion Fidelity Equity Income and the $18.7 billion Fidelity Equity Income II, large-cap value equity income funds, all have increased trading costs because of their size, and flexibility to add value through small- and mid-cap issues is lost.
* The $10.6 billion T. Rowe Price International Stock Fund owns a large number of stocks and is more index sensitive than many other international funds.
Money management firms form high-yield company
COLUMBUS, Ohio -- Banc One Investment Advisors Corp. and Pacholder Associates Inc., Cincinnati, jointly are forming Banc One High Yield Partners LLC.
The new firm will manage high-yield assets for institutional clients and will subadvise the One Group High Yield Bond Fund, which will be introduced later this year. The new company will be majority owned by Banc One Investment Advisors. The deal is subject to regulatory approval.
Banc One Investment Advisors manages more than $56 billion, including more than $26 billion in the One Group family of mutual funds. Pacholder Associates is a specialized high-yield bond manager, with more than $750 million under management, primarily for institutional clients, including the USF&G Pacholder Fund Inc., a closed-end, high-yield bond fund with $175 million in assets as of March 31.
Vanguard Group opens new Web site
MALVERN, PA. -- The Vanguard Group of Investment Cos. introduced a Web site, called Access Vanguard, that can be reached through www.vanguard.com. The site, for shareholders of its mutual funds, offers robust extensive transaction capabilities and online access to account information.
The new site will allow shareholders to open a mutual fund account, purchase and redeem shares, and obtain electronic statements and reports. The home page has been redesigned and offers updated performance information for leading stock and bond benchmarks. The site also will offer access to fund news and investment education curriculum.
* SunAmerica Asset Management Corp., New York, introduced two mutual funds, one of which will use a favorite picks approach from portfolio managers at three subadvisers.
Elizabeth Bramwell of Bramwell Capital Management, Spiros Segalas of Jennison Associates and Tom Marsico of Marsico Capital Management each will offer their 10 favorite stocks for SunAmerica's Style Select Series Focus Portfolio.
SunAmerica also unveiled the Dogs of Wall Street Fund, which will buy and hold the 10 highest yielding stocks in the Dow Jones industrial average, and the 20 highest yielding stocks in the S&P 400, a midcap index.
* BlackRock Funds, New York, will close the now $1.5 billion BlackRock Small Cap Growth Equity Fund to new investors Aug. 14. The fund opened in 1993. The fund will remain open to existing shareholders and participants in 401(k) plans that already offer the fund as an option. Company officials said there are no plans to open another fund with a similar investment mandate; that is, investment in companies with a market capitalization under $1 billion and high expected earnings growth. The fund was closed, said officials, to preserve the small-cap investment style.
BlackRock also launched the BlackRock Micro-Cap Equity Portfolio, managed by the same team, led by portfolio manager, William Wykle. The Micro-Cap fund will invest in U.S. companies with market caps under $300 million with above average revenue and earnings growth potential. The fund will close when it reaches $250 million.
* Russell Fund Distributors Inc., Boston, will close the SSgA Small Cap Fund to new investors effective Aug. 31.
The fund, managed by State Street Global Advisors, Boston, will continue to be available to current shareholders, participants in 401(k) plans in which the fund is available and for asset allocation programs sponsored by financial advisers.
Russell distributor officials said they are closing the now $430 million fund because it has grown rapidly in the past five years. The fund began 1997 with just $75 million. The fund tracks the Russell Special Small Company Index; the lead manager is Jeffrey Adams.
* The Bank of New York, New York, will increase the number of mutual fund families available to participants to more than 400 in its Vested Choice 401(k) program. The bank also is installing a new trading platform that will lead to lower costs and faster trades. Plan participants will have online access to their accounts for the first time next month.
* Bankers Trust Corp., New York, introduced two international equity funds. The BT Investment Global Emerging Markets Fund blends top-down and bottom-up analysis in identifying undervalued companies in Asia, Latin America, Africa and the Middle East. A "growth at a reasonable price" strategy, it blends value and growth disciplines. Paul Durham is lead manager.
The BT Investment International Small Company Equity Fund, with Monik Kotecha as lead manager, invests in stocks with market capitalizations of less than $1 billion. In addition to using growth at a reasonable price as a criteria, the fund's management team will apply enhanced industry analysis in security selection.
Paul G. Barr contributed to this column. Christine Williamson can be reached at [email protected]