Fund Observer
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The Future of China's Stimulus Efforts
Continue reading… 1 CommentThe Chinese economy has so far this year given investors plenty of reasons to be spooked. For starters, there have been concerns that a tightened lending environment means that the Chinese government is winding down its massive stimulus package. Meanwhile, the Shanghai Composite Index, which is the most common way to track the performance of the Chinese stock market, has tumbled by around 8.8 percent year-to-date.
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Health Funds Get Boost From ‘Relief Rally’
Continue reading… 1 CommentA rash of cautious optimism has propelled health funds to an encouraging start for 2010. With healthcare reform looking stalled at best, the funds have benefited from a "relief rally," says Morningstar analyst Christopher Davis.
[See How Healthcare Reform Could Affect Your Investments.]
Overall, health funds are the top-performing domestic stock fund category so far this year, according to Morningstar. To date, their 2010 returns are 2.74 percent. Financial funds are next in line, with year-to-date returns of 0.82 percent. "It's looking less likely that something is going to happen with healthcare reform," says Davis. "With that uncertainty lifted from the sector, I think that's been helpful."
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For Money Market Funds, Changes Are Mostly Cosmetic
Continue reading… 0 CommentsThe Securities and Exchange Commission on Wednesday approved a series of proposals that will further regulate money market funds. As a result of the SEC's vote, money market funds will have to report their net asset values more frequently and meet new liquidity minimums. Regulators hope that the changes, which are mostly cosmetic, will soften the funds' image in the aftermath of a rough year.
[See Money Market Insurance Program Set to Expire.]
One of the bigger changes that the SEC approved is a new liquidity threshold for money market funds. Under the guidelines, they will be required to be able to sell at least 10 percent of their assets within one day and 30 percent within one week to meet potential redemption requests.
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The Forecast for Financials
Continue reading… 0 CommentsIn Wednesday's State of the Union address, President Obama reiterated his plans to propose a tax on some of the country's largest banks and legislation that could limit their size and restrict certain types of trading. A wave of populism has swept through the country, and big banks seem to be bearing the brunt of citizens' frustration. Questions about what the final proposals will seek to accomplish has rattled the stock market. What does this antibanker sentiment in Washington mean for investors? Jeff Arricale, manager of the T. Rowe Price Financial Services Fund (symbol PRISX), says that uncertainty about potential regulation hasn't stopped him from investing in some of the biggest names in the banking industry. He runs a sector fund, meaning it primarily focuses on one slice of the market. The fund returned 28 percent in 2009 and an annualized 5 percent over the past decade. U.S. News spoke with Arricale to get a better understanding of the situation and who's most likely to be affected by further regulation of Wall Street. Excerpts:
[See 4 Funds For the Record Books.]
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Socially Responsible Funds Drawing Lines in the Sand
Continue reading… 1 CommentHow socially responsible is socially responsible enough? That's the awkward question that managers across the country are grappling with as they balance the need to be profitable against their investors' demands for funds that follow strict guidelines. Think of it in terms of vegetarianism versus veganism.
In the investing world, the debate plays out like this: Do fund providers merely need to employ rudimentary screens? If that's not enough, how thorough do the screens need to be before they are sufficient? These questions are important for two reasons. First, they are impossible to resolve. And second, they are being asked more and more as social, environmental, and religious funds proliferate. Last month, FaithShares Trust introduced the world's first Christian exchange-traded funds. Four of its ETFs represent specific denominations—Lutheran, Methodist, Baptist, and Roman Catholic—and one is a catch-all Christian fund. Each of the first four tracks a different proprietary large-cap index that is molded around the given denomination's guidelines as to what constitutes an acceptable investment. The Christian fund's index is a hybrid of the other four.
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The Skinny on Utilities Funds
Continue reading… 0 CommentsUtilities mutual funds and ETFs have historically been defensive investments because they can offer yields that provide some cushion in bear markets. These funds may be an appropriate investment for those who are looking for noncyclical or defensive investments, as the demand for gas, electricity, and water utilities is constant throughout market cycles and therefore leads to consistent dividend yields. Over the past decade, many of the funds have added unregulated utilities companies and emerging-market investments to their core regulated utility holdings, increasing their volatility. Currently, there are 23 utilities mutual funds and 19 utilities ETFs, according to Morningstar. U.S. News spoke with mutual fund analysts about how investors can use these funds, how they perform in bull and bear markets, and how they respond to interest rate changes.
[See the 10 Strangest Mutual Funds.]
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Why Directors Should Have ‘Skin in the Game’
Continue reading… 0 CommentsMutual funds whose directors have "skin in the game" significantly outperform their competitors, according to a study by Syracuse University Prof. David Weinbaum. His results confirm the commonly held belief that directors who are invested in the funds that they oversee act as better stewards than directors who don't have any money on the line.
[See Study Shows Increases in Mutual Fund Fees.]
In the study, which was published last month in the Journal of Financial and Quantitative Analysis, Weinbaum and his colleagues examine roughly 1,000 actively managed stock funds from the 25 largest fund providers. They break the funds into four groups based on the amount of ownership interest that their directors have. The funds in the bottom quartile don't have any directors with money in them, while those in the top group are marked by significant director investment. All told, the funds in the top quartile have outperformed those in the bottom one by upwards of 2 percent per year.
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How to Invest in Commodities
Continue reading… 1 CommentCommodities remain an extremely volatile investment, but many advisers recommend that investors consider using commodities in a small part of their portfolio for purposes of diversification. The term is used for products that range from natural gas to pork bellies. "Five years ago, they were more of a novelty," says Tom Lydon, editor of ETFTrends.com. "Now, with the potential of inflation and the greater demand for commodities around the world, there's definitely a reason to have between 5 and 10 percent of your overall allocation in commodities." Here's a few things to consider before investing:
Understand the risks. For some investors who are willing to think outside the box, investing in commodities can actually bring down the overall volatility of their portfolio. Investing in commodities alone is an extremely volatile endeavour, and investors should be aware of this before they consider investing. "There's of course going to be times when commodities don't do well," says Tom Idzorek, chief investment officer at Ibbotson Associates, a Morningstar company. "If people are scared off by that, then chances are commodities aren't for them."
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ETFs to Get Their Own Trade Group
Continue reading… 0 CommentsPublic relations specialist Irving Straus says that by the middle of next month, he will unveil the ETF Council, a trade group for exchange-traded funds. The council will be charged with making ETFs more visible and lobbying for them in the federal government.
[See ETFs Cross $1 Trillion Mark.]
For years, Straus has represented financial services companies through his public relations firm, Straus Corporate Communications. He is also the founder of the Mutual Fund Education Alliance, a group that works to promote mutual funds. With his new venture, Straus hopes to give the budding ETF industry its first unified and exclusive front. "The idea here is to have a voice of the ETF industry," he says.
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What Would It Take to Slow Bond Flows?
Continue reading… 0 CommentsFor the past 43 weeks, mutual funds have experienced net inflows (i.e., shareholders have invested more money than they have pulled out). The key component of this streak is abundantly clear: Bond funds have been on a tear. According to Morningstar, mutual funds took in $377 billion in 2009. Of that, $357 billion came from bond funds. U.S. stock funds, meanwhile, experienced net outflows to the tune of $25.7 billion. An interesting question, then, is: What would it take to unhinge the powerful momentum that bond funds have picked up? U.S. News asked Avi Nachmany, a cofounder of the mutual fund research and intelligence company Strategic Insight. His response:
