Week In Review
January 11, 2010
BRIC Funds Top Performers of 2009
Emerging markets funds, particularly those focused on the BRIC nations of Brazil, Russia, India and China, were the top gainers in 2009, soaring an average of 72%, according to Morningstar data. But following emerging markets funds' disastrous 55% decline in 2008, investors are being advised to proceed with extreme caution.
"Most fund managers think the China and emerging-markets growth stories are still intact for the long term, but [2010 is] a tough call because of the run-up we've seen this year," Gregg Wolper, senior fund analyst at Morningstar, told The Wall Street Journal.
Nonetheless, managers of international funds argue that the valuations of their funds are below their record highs, giving them cause for optimism in 2010. As Christopher Arbuthnot, co-manager of the John Hancock Global Opportunities Fund, up 93% in 2009, put it: "A lot of the stocks we own are still well below their prices in mid 2008, and yet their businesses haven't really been affected [by the economic slowdown]."
Bradley Radin, manager of the Templeton Global Smaller Companies Fund, which delivered 70% last year, added: "There are still sectors and countries that are beaten up," failed to rise in 2009 and are more than likely to do so in 2010.
Among the 25 largest international mutual funds and exchange-traded funds, the biggest ETF winner was the iShares MSCI Emerging Markets ETF, up 68%, and the best-performing equity fund was the Dodge & Cox International Stock Fund, up 48%. Among funds focused only on China, the Oberweis China Opportunities Fund takes the top prize, having returned an astounding 130% in 2009. By comparison, among Japan funds, the best-performer was the Fidelity Japan Smaller Companies Fund, which rose 20%.
IRS Stalls on DB(k) Hybrid
Because the Internal Revenue Service has not yet determined the market rate of interest for so-called "DB(k)" plans-hybrids of pensions and 401(k)s-many companies eligible to begin offering them as of Jan. 1 are waiting on the information.
Companies with between two and 50 employees are eligible to offer the plans. Based on rules in the 2006 tax code, Principal Financial and the American Society of Pension Actuaries developed DB(k)s, which would offer a small lifetime income stream based on an employee's salary at retirement out of a lump cash sum. Both workers and their employers would make contributions to the plan.
The Pension Protection Act of 2006 required the IRS to determine an interest rate on the cash balance accounts that would not exceed the market rate of return, which the IRS has yet to determine.
Vanguard Settles Bias Suit
Vanguard will pay $300,000 to settle a lawsuit filed by the U.S. Equal Employment Opportunity Commission accusing it of racial bias against a black financial planning candidate and overall bias in its hiring practices.
The EEOC alleged in a federal complaint filed in September that Vanguard decided not to hire Barbara Alexander as a financial planning manager because she was black even after she was told during the hiring process, including at roughly 13 interviews, that she was qualified for the job. Alexander has worked in the industry for 14 years.
Vanguard instead offered the job to two less qualified white men, and one accepted, according to the EEOC. The settlement was filed Monday in U.S. District Court in Philadelphia.
Morningstar Names Fairholme Manager of 2009
Morningstar has announced its three Fund Managers of the Year for domestic stock, international stock and fixed income.
Bruce Berkowitz, manager of the Fairholme Fund, is Domestic Stock Fund Manager of 2009. The team at American Funds EuroPacific Growth Fund was named International Stock Fund Manager of 2009, and Fixed Income Fund Manager of 2009 goes to the team running the Loomis Sayles Bond Fund.
"Stock and bond markets posted spectacular gains in 2009, but investors remain subdued, with portfolios still marred by the global financial crisis that began in 2007," said Morningstar Director of Fund Analysis Karen Dolan. "The winning managers deftly steered their funds throughout the tumultuous environment and emerged strong in 2009's rally."
Morningstar selected the three winners for their "exceptional stewardship of capital" over the long term, Dolan added, taking both the very difficult 2008 and last year into account.
Berkowitz revamped his portfolio in 2008 by selling high-flying energy stocks and picking up out-of-favor pharmaceutical and defense companies. His fund gained 39% in 2009, placing it in the top 9% of its large-blend peer group. Since its inception in December 1999, the fund has more than tripled, while the market declined 10% in that period.
"Bruce Berkowitz continues to impress in good markets and in bad. While 2009 is a great achievement for the fund, it is all the more impressive when you consider the attractive returns he's put up year after year in a variety of environments," Dolan said.