Week In Review
April 13, 2009
Frugality Expected to be the 'New Normal'
The mutual fund industry got a swift dose of investors' new conservative sentiment recently when PIMCO released a survey showing that 401(k) consultants are focusing on cash-equivalent and target-date funds. Now economists are debating whether "the new frugality" will outlast the recession, and the consensus is that it will, potentially as long as the next 10 years.
"It's hard to believe we're ever going back to the easy credit and free spending of the last 10 years," Richard Berner, an economist with Morgan Stanley, told The Wall Street Journal. He foresees consumer spending growing a scant 2% to 2.5% a year over the next decade, compared with 3.5% over the past decade.
If mutual fund companies can convince consumers to set some of that money aside for their retirement, of course, that is good news. But currently, many investors have moved their cash to money market funds and bank deposits, and a growing majority of Americans are working assiduously to pare down their debt.
Credit card Discover found in a survey that 35% of Americans intend to reduce their debt over the next six months, and one-third said that the extra money they will have as a result of lower payments is going into savings.
Many economists note that it will take Americans a while to recover from the $13 trillion loss of wealth since the recession began. And if it gets worse, people's outlook toward money, saving, retirement and consumer spending will be tamped down further, said Ravi Dhar, director of the center for consumer insights at Yale.
Phased Retirement a Boon For Boomers, Employers
Companies can reduce labor costs and retain key talent for continued smooth operations by considering phased retirement, Deloitte recommends. And for workers, it can protect their retirement income for a longer period of time.
"The potential benefits for a business are even greater," Deloitte said. "Phased retirement allows you to reduce your labor costs without undermining morale and productivity. Best of all, it lets you hold onto your most experienced workers so they can share their knowledge with others, and provides a ready source of talent for when the economy recovers."
Alliance, Ameriprise, Barclays, Columbia Vote Most for Higher CEO Pay
By voting in favor of management proposals for large executive pay packages rather than shareholder proposals for pay tied to performance, fund companies are contributing to excessive pay, three groups charge.
The fund companies that voted most often for the pay increases were AllianceBernstein, Ameriprise, Barclays and Columbia Funds, charges the American Federation of State, County and Municipal Employees, The Corporate Library and the Shareholder Education Network.
Fund companies that voted most frequently to constrain pay were Templeton, T. Rowe Price and Schwab. They also voted against directors on compensation committees at pay-offending companies at a higher rate than other fund companies.
The groups based their findings, in the report "Compensation Accomplices: Mutual Funds and the Overpaid America CEO," on analysis of mutual fund voting patterns in 2007 and 2008.
"Given the performance of many companies, investors in mutual funds should be outraged that their assets are being used to prop up CEO pay that is too often undeserved and unearned," said AFSCME International President Gerald W. McEntee. "The worst-ranked funds are accomplices in the overpayment of CEOs. They should be protecting the assets of their clients by demanding that CEOs get paid for performance, rather than supporting runaway pay."
As an industry, mutual funds are increasingly siding with management on compensation issues, voting with them 82% of the time in 2007 and 84% in 2008, up from 75.8% of the time in 2006.
Lipper Announces 2009 Fund Award Winners
American Century Investment Management and Waddell & Reed Investment Management won "Best Fund Group Overall" honors in the large and small fund company categories, respectively, at the U.S. Lipper Fund Awards 2009 ceremony in New York.
Lipper, a Thomson Reuters company, presented trophies and certificates to funds that topped their Lipper classifications and performed consistently well during the past three, five and 10 years.
Fidelity Management & Research Co. won 25 individual awards, while Vanguard Group won 15 awards, BlackRock won 11 and American Century won 10 individual awards.
"Each of the winners should be recognized for delivering consistently good risk-adjusted performance, relative to their peers in such dramatic events as experienced by the financial markets during the last 12 months," said Eric Almquist, Lipper's chief operating officer.
Globally, Lipper awards funds in 21 countries and regions.
Eaton Vance Launches Tax-Advantaged Bond Strategies Fund
Eaton Vance Distributors has launched the Eaton Vance Tax-Advantaged Bond Strategies Fund, succeeding a similar private investment fund that was formed in 1991.