Week in Review
June 4, 2007
Boomer Rollovers Not Expected to Hurt 401(k)s
As the 77 million Baby Boomers begin to retire and cash out of their stock and mutual fund holdings, the market will not spiral into a bear market, according to a new study from the National Bureau of Economic Research called "New Estimates of the Future Path of 401(k) Assets."
Although 401(k) assets currently represent only a small fraction of people's retirement portfolios, they will grow markedly in the coming years, the authors of the study maintain. That's because 401(k)s have only existed since the early 1980s, and younger investors have many more years to contribute to their 401(k)s than current retirees had.
The percentage of eligible workers investing in 401(k)s has also increased, from 56% in 1984 to 81% in 2003.
Revised Proposal Exempts Funds From B/D Vote Rule
The mutual fund industry is cheering as the New York Stock Exchange proposal to ban brokers from voting on behalf of some shareholders has been modified to exclude mutual funds, according to The Wall Street Journal.
The revised plan, submitted to the Securities and Exchange Commission, states that the mutual fund industry is exempt from an NYSE proposal to eliminate broker voting on behalf of shareholders who don't vote shares themselves.
The current NYSE rules allow members' brokers to vote shares on routine matters, including uncontested elections, if the owners whose shares they hold don't submit their own votes within 10 days of the shareholders' meeting.
The original proposal was never released, but garnered opposition from the Investment Company Institute, which believed the proposal would make it more difficult and costly to elect directors while adding little benefit to fund investors.
Paul Schott Stevens, president of the ICI, said the fund group is pleased to support the amended proposal.
As a general matter, "the election of directors is not routine," said Catherine Kinney, NYSE Euronext president and co-chief operating officer, at an SEC meeting.
However, smaller public companies, which also raised similar arguments as the mutual fund industry, are not exempt under the revised proposal.
The NYSE said its decision to shield only fund companies came even though its advisory group had "considerable concern and discussion about the potential problems facing smaller issuers as a result of the potential rule change, as well as discussion about the similarities and differences between smaller operating companies and investment companies."
Democratic A.G.s Won't Focus on Wall Street
In line with the priorities that Democrats in Congress have set, the 31 Democratic state attorney generals are most likely to shift their focus away from abuses on Wall Street to populist concerns of consumer protection, health and safety, Forbes.com reports.
During Eliot Spitzer's tenure as New York's attorney general from 1998 to 2006, other state attorney generals followed his lead to concentrate on financial abuses at mutual fund companies and other investment firms. But now, they are likely to shift their attention to the issues of lower-income constituents, such as student loans and property insurance. Already, Spitzer's successor, Andrew Cuomo, has proven this to be the case-noteworthy since New York is a state where the financial sector is one of the biggest industries.
And in California, former Attorney General Bill Lockyer, who brought numerous cases against mutual fund and other asset management firms, has been replaced by consensus-builder Jerry Brown. Strengthening environmental laws is among his chief concerns.
MFS CEO Expects Slower Asset Growth Ahead
MFS Investments chief executive officer said he doesn't expect assets to grow as much as the 20% they climbed in the past 12 months, due to "more normal" market conditions of about 8% a year, Reuters reports. As the firm's assets hit the $200 billion market in April, the company celebrated by giving each of its employees either $200 or a windbreaker inscribed with the figure.
"The $200 billion did come faster, but it was because of a big market rally that we had," said MFS CEO and Chief Investment Officer Robert Manning. "We just don't expect that going forward." In fact, the company hopes to reach $250 billion or $300 billion in the next three years.
To reach that level, Manning's main goal is to return to positive net flows in MFS' retail mutual funds, which have been losing money since 2000, first due to the bear market and then the trading scandal; in the first quarter of this year, the funds lost $600 million.
To counter the outflows, MFS is about to launch a multi-million dollar branding campaign and is currently hiring additional wholesalers and internal salespeople. In the past year, MFS has hired 12 wholesalers and could possibly hire 12 more, Manning said.
"It's really not a redemption problem. It's really a sales issue, which is why we are spending money on advertising and trying to get our gross sales up," Manning said.