Week In Review
March 30, 2009
PIMCO, BlackRock Among First Fund Firms to Apply for Toxic Asset Program
PIMCO and BlackRock are two of the first mutual fund companies to sign up for the Treasury Department's new program to purchase troubled assets-PIMCO as both a buyer and manager of debt and BlackRock only as a manager. Other fixed-income fund shops are expected to sign up as well. PIMCO and BlackRock also said they are considering launching mutual funds that will invest in the toxic assets.
The Treasury has committed to purchase troubled assets related to real estate held by mutual funds, banks, insurance firms, pension plans and individual retirement accounts. It will also loan money to private companies to purchase the securitized assets.
Senator Asks DOL, SEC to Regulate Target-Date Funds
Target-date funds continue to take the heat for buckling under the pressures of the market's decline with what some claim is too high an exposure to stocks, especially near-term target-date funds for those about to retire.
Sen. Herb Kohl (D.-Wisc.), who has roundly criticized target-date funds for assuming too much risk, called upon the Department of Labor and Securities and Exchange Commission last week to regulate the funds' holdings and marketing claims.
The senator noted that equity holdings in the 2010 target-date funds ranged anywhere from 8% to 68%, and one 2010 fund fell 40% last year.
Although fund companies have recently argued that because people may live 30 years in retirement, they need the added equity exposure, Kohl has countered that the volatility of the market has rendered that argument false.
On a related note, Hartford Financial Services on Monday announced that it was scaling back the equity exposure in its target-date funds and rounding out it lineup with six additional offerings.
Number of Funds Could Decline 70% by 2014
With mutual fund investors burned by negative returns of 30% to 50% over the past year, they are unlikely to remain confident about their investments, Celent predicts. As a result, the universe of 7,000 funds could shrink by as much as 70% over the next five years, leaving only 2,000 funds in existence.
"The entire financial services sector has been mauled, causing portfolios and retirement plans to hemorrhage value while requiring investors to question such basic issues as capacity for risk and planning for retirement," said Robert J. Ellis, senior vice president of the wealth management practice at Celent and author of the report, "The Global Credit Crisis: Implications for North American Wealth Management."
As investors shun equity fund investments, they will increasingly turn to stable value, annuities, cash, bank deposits, fixed income and exchange-traded funds, Ellis predicts. Lifecycle funds failed investors nearing retirement, and separately managed accounts and unified managed accounts, with their ability to steer investors' holdings to safer investments on the fly, have proven themselves better at helping investors maneuver steep declines, Ellis said.
Managers More Bullish On Bonds Than Stocks
Sixty-seven percent of asset managers surveyed by Russell Investments said corporate bonds look attractive, 61% are bullish on junk bonds, and 57% are optimistic about equities. This is the first time in five years that money managers have had a more favorable outlook on fixed income than on stocks.
And only 57% now believe that the stock market is undervalued, down from 72% who thought so in December. Among stocks, most managers have a more favorable outlook on growth (57%) than on value (42%). Within sectors of the stock market, the most popular is technology, cited by 62%, and the least popular is financial services, cited by only 30% as being a good investment.
The survey was conducted among 228 managers between Feb. 26 and March 6, when stock prices were plummeting.
Even though bond prices have fallen sharply in the past year due to investors' fear about companies' ability to pay back their debt, many money managers believe bonds are less risky than stocks.
"There's an opportunity here to get what historically people would think of as equity-like returns with a little lower volatility," Erik Ristuben, chief investment officer of Russell Investments, N.A., told The Wall Street Journal.
Even in Midst of Layoffs, Fidelity Hiring Analysts
Even as it continues to lay off 3,000, Fidelity Investments is looking for talented analysts and investment professionals as it seeks to restructure and strengthen its capabilities in the midst of the economic downturn, The Boston Globe reports.
Fidelity is keen on improving its funds' performance and is also planning to expand its research capabilities in Hong Kong and Tokyo.
The move is interesting, since Fidelity has eliminated 22 research analysts and 11 traders. Evidently, they will be replaced by people who Fidelity views as stronger candidates. "Probably they're getting rid of people where they took a hard look at their stock recommendations," ventured John Bonnanzio, editor of a newsletter for Fidelity investors.
Currently, Fidelity has 500 analysts, up from 300 in 2005.
Legg Mason Lays Off 120