Week In Review
December 8, 2008
Fidelity Promoting FDIC-Insured CDs
With the markets siphoning value from mutual funds and investors running for cover to the tune of billions of dollars in redemptions a month, Fidelity Investments is trying to hold onto customers' assets by promoting FDIC-insured certificates of deposit.
Fidelity is promoting the CDs through mailers to existing clients and in no-nonsense advertisements.
Certainly, Fidelity is being impacted by the downturn, having announced it is laying off a total of 3,000 people, or 7% of its workforce, by the end of the first quarter of 2009. Thus, it makes sense that Fidelity is trying to hold onto assets, even in lower-paying CDs.
"As you might expect, in this volatile market, our customers have expressed interest in conservative, fixed-income investments," Fidelity spokeswoman Jennifer Engle said. Fidelity is letting its customers know that, like banks, CDs are available at select mutual fund companies, including Fidelity.
Fed Extends Three Liquidity Facilities
With no end in sight for the financial crisis, the Federal Reserve Board said Tuesday it will extend three of its liquidity programs through April 30.
The primary dealer credit facility, asset-backed commercial paper money market fund liquidity facility, and the term securities lending facility were initially scheduled to end on Jan. 30.
The three-month extension means these programs will now phase out at the same time as other facilities the Fed has introduced, including the commercial paper funding facility and the money market investor funding facility.
Fed Chairman Ben Bernanke has repeatedly assured market participants that liquidity programs will remain in place as long as they are needed, meaning further extensions beyond April are possible.
The extended programs target liquidity in different sectors of the market. The PDCF lends to investment banks or the investment bank units of commercial banks, while the commercial paper facility provides loans against asset-backed paper held by financial institutions. The TSLF auctions Treasury securities.
Magellan's Lange Admits Disappointment in Results
Finance and technology stocks have put the Fidelity Magellan fund in a worse position than its benchmark, the Standard & Poor's 500, and even the fund's manager said he's disappointed.
In his semi-annual shareholder report for the period ended Sept. 30, portfolio manager Harry Lange admitted the fund did not do well. Certainly, that is true; year-to-date, the fund is down nearly 52%, compared to the 39% decline in the Standard & Poor's 500 Index.
Lange said he didn't think the financial crisis would be as pervasive as it has been, and so, held onto financial and technology stocks-which have sorely disappointed and have yet to rebound. "Looking at sectors, stock selection in technology had a sizable negative impact on the fund's performance," Lange wrote.
At this point, Lange said it could take a good long while for the economy to turn around, but in the meanwhile, he is searching for bargains in the stock market, saying that when things appear the "gloomiest" it is typically an opportune time to buy.
Lange is looking for domestic companies that export to emerging markets, as well as those with strong cash flow. "I think they have the best potential not only to survive, but eventually to thrive when the economic backdrop improves," he said.
The $21.9 billion Magellan fund rose 19% in 2007.
Legg Extends Further Support for SIV Exposure
Besides supporting four money market funds with exposure to structured investment vehicles with $420 million in capital of its own, Legg Mason has signed a one-year renewal with a bank to support $355 million in SIV securities. As of Nov. 30, the par value of SIV exposure in the funds was $2.8 billion, down from $10 billion as of Oct. 31, 2007. In conjunction with this, Legg Mason is on track to shave $120 million from its annual operating budget beginning March 31.
"Legg Mason continues to manage its resources and to take proactive steps in support of our money market funds during difficult market conditions," said Legg Mason CEO Mark R. Fetting.
"Today's actions give us financial and operating flexibility to handle potential further market deterioration. We are pursuing a number of options to eliminate exposure to SIVs in the money market funds. We have the ability and the resolve to work through these challenging markets as we act in support of our clients, our funds and our shareholders," Fetting added.
Reserve Funds Returns All Assets of Seven Funds
Reserve Funds announced it is returning all of the assets of six of its funds, at a $1 NAV, including the key Primary II and U.S. Government II funds.