Lipper Fund Industry Insight Reports

The Halfway Point

lipperclientservices@thomsonreuters.com — Fri, 06 Nov 2009 00:00:00 Z

This report examines the impact of the financial market downturn on fund expense ratios. We have examined the semiannual reports for mutual funds that have been released since the financial crisis of late 2008 and we are now able to measure actual expense ratio changes in basis points, rather than estimating the impacts.

- Approximately 70% of all equity fund total expense ratios increased over this period. For funds with increases, the average increase was 8.2 bps. Approximately 25% of the expense increases were greater than 10 bps.

- Long-term fixed income fund total expense ratios were largely unchanged. This is true for both taxable funds and municipal debt funds.

- Money market fund total expense ratios declined by 3.3 bps. Most of this decrease was driven by increased waivers for retail money market funds.

- Much of the increase in equity fund expense ratios was driven by increases in transfer agency fees and other fixed nonmanagement expenses. As fund assets declined, there was a smaller asset base over which to spread fixed costs.

- Lipper estimates that industry revenue derived from management fees is down approximately 40%. Total fees collected by the industry are down an estimated 30%.

Picking Up The Pieces: Fund Companies Respond to the State of the Industry One Year Later

lipperclientservices@thomsonreuters.com — Mon, 19 Oct 2009 00:00:00 Z

As the U.S. fund industry begins to recover from possibly the worst economic and financial correction that it has ever experienced, it is important to understand what has changed from a year ago. Lipper sent a survey to a number of U.S. asset managers in order to gauge some of the industry’s reactions to the recent market events and identify potential changes, going forward. This report aggregates the responses of this recent survey.

- The U.S. fund industry is beginning to exhibit some signs of stabilization as the recent recession appears to be easing. Fund assets have increased substantially from February lows, driven by strong market returns and increasing net sales of mutual fund shares.

- The impact of the past year on fund expense caps seems to have been mixed. While a number of firms sought board approval for expense cap increases, it appears that it was only for a small number of funds. A number of firms indicated that expense caps were lowered for funds over the past year as well.

- It is likely that 2009 will realize more merger activity than has been experienced in the industry for some time. As fund assets plummeted, many funds were merged due to decreasing sales and in order to stem some operational inefficiencies.

- As expected, profitability for asset managers has declined over the past year. Substantial declines in assets under management decreased firm profitability.

(Executive Summary only – Please contact us to purchase the full version of this report.)

2008 Fund Expense Recap

lipperclientservices@thomsonreuters.com — Tue, 26 May 2009 00:00:00 Z

Lipper's review of U.S. 2008 fund fiscal expense ratios, current investment expense trends, and fee and expense outlook for 2009.

Riding The Currents

lipperclientservices@thomsonreuters.com — Tue, 31 Mar 2009 00:00:00 Z

Riding The Currents - A Fund Executive's Guide to Maintaining Revenue Streams and Asset Flows.

A Means of Mitigating Fund Losses in Turbulent Markets

lipperclientservices@thomsonreuters.com — Sat, 13 Dec 2008 00:00:00 Z

- In 2008 investors could have mitigated losses (improved their returns on average) by as much as 11.61 percentage points by choosing a fund with a Lipper Leader for Preservation rating.

- Adding an evaluation of downside risk to the portfolio review and creation process can help temper the wild swings we encounter every now and then.

- Lipper Leaders for Preservation is a tool investors can use to evaluate the downside history of their funds in their overall asset allocation and diversification portfolio-building process.

GCC Fund Market Report H1 2008 - Stock Markets in the GCC Recorded Positive Returns for First Semester 2008

lipperclientservices@thomsonreuters.com — Fri, 15 Aug 2008 00:00:00 Z

GCC markets posted mixed results during the first semester, with two of the seven markets closing in the red. The Kuwaiti and Omani bourses retained their bull trends, with the Kuwait Stock Exchange posting a 26.95% return and the Muscat Securities Markets 30 a 25.30% return. The Qatari market rebounded strongly during the second quarter, posting an astonishing 24.00% return after a mediocre first quarter (-0.20%). For their part the Abu Dhabi and Bahraini bourses recorded positive performances, notably during the second quarter, and ended the semester gaining 8.82% for the Abu Dhabi Securities Market and 3.47% for the Bahrain All Shares. On the other hand, the Dubai and Saudi markets were the big losers of the first six months, shedding 8.24% and 15.26%, respectively.

Lipper Hedge Fund Survey, November 2007

lipperclientservices@thomsonreuters.com — Wed, 02 Jan 2008 00:00:00 Z

Global hedge fund managers optimistic for industry performance in 2008, citing Distressed Securities, Global Macro, Long/Short Equity and Emerging Markets as the likely best performing strategies

Lipper Hedge Fund Survey, November 2007

Tue, 01 Jan 2008 00:00:00 Z

Global hedge fund managers optimistic for industry performance in 2008 citing Distressed Securities, Global Macro, Long/Short Equity and Emerging Markets as the likely best performing strategies

Lipper Performance Fees in the UK

Mon, 10 Dec 2007 00:00:00 Z

This new report provides an overview of the use of performance fees in the UK, touching on different relevant issues, including:

- Performance fees are used by around 1% of Unit Trusts and OEICs in the UK, three years after the ban on these fee structures was lifted.

- Examining FSA regulations on structuring performance fees shows how different factors may help investors.

- Looking at the use of performance fees by funds in other European domiciles and by closed-ended funds in the UK reveals how much more widely performance fees are used.

- US mutual fundsâ€™ use of performance-related (fulcrum) fees, including 130/30 funds, offer interesting comparisons.

- The relative annual management fees for funds with and without performance fee structures are compared - assessing whether funds with performance fees bear lower â€˜fixedâ€™ fees.

- A â€˜checklistâ€™ of factors to be considered when assessing performance fees is provided as a guide for investors and fund companies

For further information, please contact:

Claire Appleton
Global Client Account Manager
Lipper

E-mail: claire.appleton@reuters.com
Tel: +44 20 7307 1464

or

Ed Moisson
Director of European Fiduciary Operations
Lipper

Tel: +44 20 7307 1460
Email: ed.moisson@reuters.com

Ranking Target-Date Funds Using Past Performance--Part II

lipperclientservices@thomsonreuters.com — Thu, 29 Nov 2007 00:00:00 Z

In Part II of Ranking Target-Date Funds Using Past Performance, we show ranking results for 2010, 2020, and 2040 target-date funds using the newly developed methodology of paired comparison diagraphs. This methodology produces the same results as the Bradley Terry method used in Part I where we described the ranking methodology and showed results for 2030 target-date funds.

High Grading Data: Retaining Variation, Reducing Dimensionality

lipperclientservices@thomsonreuters.com — Tue, 13 Nov 2007 00:00:00 Z

In the quantitative analysis of financial data researchers are frequently confronted with the situation of more (potentially far more) financial measures--return values, benchmarks, indices, prices, balance-sheet values, etc.--than observations of the financial objects from which the measures were taken. Such an analytical context in which the number of samples or observations is fewer than the number of items or properties being measured has certain consequences for statistical analyses of the dataset. Researchers at Lipper are often confronted with analyses of very large datasets of this type. In this paper we describe elements of a patent pending process we have dubbed "high grading," which can be used in this analysis environment to preserve relationships among data elements, while ensuring certain types of analyses are more tractable.

Ranking Target-Date Funds Using Past Performance

lipperclientservices@thomsonreuters.com — Tue, 06 Nov 2007 00:00:00 Z

In this paper we will discuss the following:
- A simple way of ranking target-date funds that will benefit investors.
- This benefit arises because the ranking method rewards consistent fund outperformance.
- The ranking method also chooses a dominant set of funds, i.e., a group of funds that consistently beats its peers. These funds can be viewed as the Roger Federers of the target-date fund world.
- The ranking methodology also allows examination of the factors influencing the rankings. We find evidence that individual target-date fund expense levels may not affect performance rankings.

Stock Fund Net Flows Are Down, But Are They Out?

lipperclientservices@thomsonreuters.com — Mon, 17 Sep 2007 00:00:00 Z

In this study we highlight the recent downturn of stock fund net flows and show that:
- Net flows into stock funds are down more than 50% from their 2003 highs.
- Domestic stock fund net flows are currently hovering around zero on a month-to-month basis.
- Net flows into world stock funds are about $12 billion per month.
- This low level of net flows into stock funds has not been seen since 1994.

We also examine the strong impact life-cycle funds have had on stock fund flows and why their impact may be a long-lasting one.

A Yield by Any Other Name Would Smell As Sweet . . . ? Comparing Yield Calculations for Closed-End Funds

lipperclientservices@thomsonreuters.com — Tue, 19 Jun 2007 00:00:00 Z

- There are many attractive features of closed-end funds; one of the biggest is yield. Understanding the many available yield calculations is vital in picking the right fund.
- Quite a few closed-end funds have a managed distribution policy; using only the standard yield calculation in fund analysis may not provide all the needed information.
- While there are a slew of yield calculations from which to choose, the annualized yield, income-only yield, and 12-month yield calculations are the most common measures found online.
- Knowing the differences between the calculations and being able to compare and contrast each with the others help us understand the workings of the fund and how to make more-informed investment decisions.

GERMAN PORTFOLIO MANAGERS REDUCE THEIR BOND EXPOSURE IN FEBRUARY

lipperclientservices@thomsonreuters.com — Thu, 01 Mar 2007 00:00:00 Z

The February Asset Allocation Poll showed a decrease in the average equities component with reference to a global balanced portfolio.

The average percentage invested in the bonds component of a global balanced portfolio also decreased in February.

The cash component increased on average.

In February the alternatives component increased slightly.

The Role of Hedge Funds and Hedge Fund-Like Mutual Funds in a Portfolio

lipperclientservices@thomsonreuters.com — Wed, 07 Feb 2007 00:00:00 Z

- Hedge funds offer good diversification benefits, especially when stock or bond markets are falling.
- Hedge fund-like mutual funds offer the same or similar diversification benefits as hedge funds do.
- The value at risk (VaR) for most of these hedge funds and hedge fund-like mutual funds is smaller than the VaR for large-cap, small-cap, and REIT funds.

SPANISH MANAGERS MAINTAIN THEIR ASSET EXPOSURE BASICALLY UNCHANGED IN JANUARY

Wed, 31 Jan 2007 00:00:00 Z

The January asset allocation poll showed a slight decrease of exposure to equities and a slight increase to bonds.

Equitiesâ€™ average exposure decreased slightly to 46.47% from the 46.63% recorded in December, while bondsâ€™ average exposure increased to 37.76% from 37.55%.

The median readings for equities and bonds decreased and increased, respectively, so they were consistent with the average figures.

The Pharma & Health sector has become one of the sectors where most managers are overweighted relative to their internal benchmark (64%).

SPANISH FUND MANAGERS INCREASE THEIR EXPOSURE TO CASH IN DECEMBER

lipperclientservices@thomsonreuters.com — Sun, 31 Dec 2006 00:00:00 Z

The December Asset Allocation Poll showed Spanish managers increased their average aggregate exposure to cash to a level not seen since July.

The average equities exposure was also increased slightlyÃ¢â‚¬â€to 46.63% from the 46.24% recorded in November.

On the other hand, the average aggregate exposure to bonds decreased to 37.55% from the 38.32% recorded a month earlier.

The positive view and confidence in equities was further reinforced by the fact that no manager planned to reduce exposure to this asset type over the next three months.

Pan European ETFs Assets under Management and Trading Activity Increased in 2006, with Turnover Reading Climbing About 51% Year On Year.

lipperclientservices@thomsonreuters.com — Fri, 29 Dec 2006 00:00:00 Z

In December the traded volume of ETFs decreased 11% to 508 million shares, posting a 26.78% increase year on year.
Turnover in euros of ETFs listed on the European exchanges decreased 15.79% from November. Conversely, the turnover reading climbed 50.38% year on year at December 2006.
The London exchange together with the German exchanges and the OMX Copenhagen maintained the leadership in terms of market share in Europe and were among the top five, considering both traded volume and turnover.
With the exception of the Spanish stock exchanges, the average intraday bid-ask spread tightened in December.
Turnover in shares and euros decreased in the exchange-traded commodities (ETCs) segment of the European exchanges in December.

European Cross-Border Fund Fee & Expenses

Thu, 09 Nov 2006 00:00:00 Z

• Average Total Expense Ratios (TERs) for cross-border equity funds generally rise in line with the number of European country registrations.
• The average fund size for different numbers of market registrations does not correlate to higher or lower average TERs.
• For bond and cash funds, the correlation between increasing the number of European countries for sale and TER averages is not so clear.
• There are wide differences in TER averages between cross-border fund promoters; promoters’ average TERs range from 1.21% to 2.93%.

Impact of Fund Expenses on Alpha

lipperclientservices@thomsonreuters.com — Thu, 09 Nov 2006 00:00:00 Z

• A relationship does exist between TERs and superior performance for bond funds. Within a sector, lower cost funds tend to rank favourably for alpha among the sectors. Conversely higher expense funds ranked within the lower alpha quintile.
• However, the TER/alpha relationship for equity funds is not as strong. In some cases, equity funds with higher TERs do compensate investors; in others the low-cost funds have the performance advantage.
• Less than half of the funds studied ranked in the same quintile year after year. The persistency data suggests a weak link between expenses and performance over time.
• It is important to note the study analyses the relationship between fund expenses and the relative alpha quintile ranking for specific sectors. Though investor returns will be higher in a low cost fund with similar returns to a high cost fund, low cost equity funds do not necessarily rank as favourably for alpha within a sector in a given one-year period.

Targeting Target Maturity Funds

lipperclientservices@thomsonreuters.com — Fri, 30 Jun 2006 00:00:00 Z

- In this paper we describe a methodology for examining target maturity funds as an integrated whole over all funds in a given program.
- The target maturity programs (the collection of target maturity funds) of four fund companies--AllianceBernstein Retirement Strategies (2005), Fidelity Freedom Funds (2005), T. Rowe Price Retirement Funds (2005), and Vanguard Target Retirement Funds (2006)--were examined.
- The simulation results find that AllianceBernstein's offering was the leader for both raw returns and risk-adjusted returns.
- Other than raw and risk-adjusted returns there are three additional factors to consider: idiosyncratic investments, strategy complexity, and percentage of equities in the glide path.
- Keeping an eye on the standard deviation as a measure of risk is misleading. Investors should be focusing instead on expected shortfall, which will be likely to compensate them with what they need at their retirement.

Patterns in Higher-Yielding Debt Funds: Comparisons, Contrasts, and Caveats

lipperclientservices@thomsonreuters.com — Thu, 29 Jun 2006 00:00:00 Z

- Considerable differences exist in three higher-yielding domestic debt funds classes as to performance, consistency, asset growth, and net money flows over time.
- Investors and intermediaries clearly should not consider the three types profiled as interchangeable.
- Some higher systematic risk appears to exist in high-yield taxable debt funds, which intermediaries and fund marketers should clearly point out to prospective buyers.
- Retail investors strongly gravitate to higher yield but sometimes their choices are not well informed; professionals' attention is warranted in this challenge.

Targeting Target Maturity Funds: Extended Executive Summary

lipperclientservices@thomsonreuters.com — Tue, 27 Jun 2006 00:00:00 Z

- In this paper we describe a methodology for examining target maturity funds as an integrated whole over all funds in a given program.
- The target maturity programs (the collection of target maturity funds) of four fund companies--AllianceBernstein Retirement Strategies (2005), Fidelity Freedom Funds (2005), T. Rowe Price Retirement Funds (2005), and Vanguard Target Retirement Funds (2006--were examined.
- The simulation results find that AllianceBernstein's offering was the leader for both raw returns and risk-adjusted returns.
- Other than raw and risk-adjusted returns there are three additional factors to consider: idiosyncratic investments, strategy complexity, and percentage of equities in the glide path.
- Keeping an eye on the standard deviation as a measure of risk is misleading. Investors should be focusing instead on expected shortfall, which will be likely to compensate them with what they need at their retirement.

REIT Funds: Cheap, Dear, or Fairly Priced?

lipperclientservices@thomsonreuters.com — Thu, 20 Apr 2006 00:00:00 Z

In a study on the prices of the components of real estate investment trust (REIT) funds, Lipper has found that:
• Given their current price, office REITs have an implied long-term (ten-year) earnings-per-share (EPS) growth rate of 2.9% versus combined analysts’ estimates of 5.8%.
• Residential REITs have an implied long-term EPS growth rate of 2.4% versus combined analysts’ estimates of 5.1%.
• Shopping center REITs have an implied long-term EPS growth rate of 2.7% versus combined analysts’ estimates of 6.2%.
• “Other” REITs have an implied long-term EPS growth rate of 3.7% versus combined analysts’ estimates of 5.8%.
• So, current prices for all REIT segments appear to be cheap versus analysts’ long-term EPS estimates.
• Therefore, when you examine your REIT fund or if you’re planning to buy one, see what the mix of REIT industries is. It may make a difference in how well your REIT performs in the future.

Picking the Neffs and Millers of the Future with Lipper Leaders

lipperclientservices@thomsonreuters.com — Tue, 21 Mar 2006 00:00:00 Z

In this study Lipper found that:
• Using Lipper Leaders for Total Return, Consistent Return, and/or Preservation can help pick equity and bond funds that have above-average future one-year returns more than 50% of the time and sometimes more than 70% of the time.
• For funds that were Lipper Leaders for 12 months running in:
o Total Return
o Total Return and Consistent Return
o Total Return, Consistent Return, and Preservation
Lipper found that in more than 50% of the cases, the next year’s returns for these equity and bond funds were in the first or second quintile, with there often being a two-to-one chance that the funds would be in the first quintile (top 20%) of their peers.

Mixing Active and Passive Investments

lipperclientservices@thomsonreuters.com — Mon, 13 Mar 2006 00:00:00 Z

Abstract
While the debate concerning the value of actively versus passively managed funds continues, this paper shows there are times when investors would be better-served by moving from one type to the other. Specifically, our focus is on S&P 500 Index-Objective (SPSP) funds and funds included in Lipper’s Large-Cap Core (LCCE) classification. Using a popular technical indicator to trigger movement of assets between SPSP and LCCE portfolios has provided returns above those of the passively managed portfolio alone. The indicator is based on a simple ratio of the number of actively managed portfolios outperforming the average passively managed portfolio on a risk-adjusted basis. Buy-and-sell signals are generated by crossovers of moving-average convergence/divergence (MACD) of the active-versus-passive ratio (AVPR). Over the 20-year period of this study SPSP funds created an average annual return of 11.36%, and the corresponding average annual return of LCCE funds was 10.84%. Using the buy-and-sell signals of the MACD crossover to move monies between an SPSP fund and a small selection of LCCE funds produced an average annual return of 11.92%. This 56-basis-point advantage may not seem significant; however, over this 20-year period the SPSP funds accumulated an average 760% gain, while the portfolio based on the buy-sell signals accumulated an average 852% and LCCE funds alone produced an average 684% gain.

Asset Allocation Poll December 2006: German Portfolio Managers Show A Slightly Increasing Appetite For Risk In December

lipperclientservices@thomsonreuters.com — Wed, 01 Mar 2006 00:00:00 Z

The December Asset Allocation Poll showed an increase in the average equities component with reference to a global balanced portfolio.

The average percentage invested in the bonds component of a global balanced portfolio decreased in December.

The cash component increased on average in global balanced portfolios in December.

Trend Analysis of UK Funds’ Fees and Expenses

lipperclientservices@thomsonreuters.com — Wed, 18 Jan 2006 00:00:00 Z

• Trends in active and passive equity funds’ expense levels suggest a growing divergence between these products

• Where asset levels have risen for actively managed equity funds there are signs of falling simple average Total Expense Ratios (TERs)

• However, for asset-weighted averages of both bond funds and actively managed equity funds the overall picture is of rising TERs and management fees

• Importantly, passively managed funds’ average TERs are falling

• Companies changing management fees are far more likely to raise them towards competitors, rather than lower them

Asset Allocation Umfrage Deutschland Dezember 2006: Im derzeitigen positiven Umfeld sind Portfoliomanager von gemischten Portfolios wieder bereit mehr Risiko zu tragen

lipperclientservices@thomsonreuters.com — Tue, 03 Jan 2006 00:00:00 Z

Die Dezember Asset Allocation Umfrage zeigt einen erneuten Anstieg der Aktienquote in den globalen gemischten Portfolios.

Der Rentenanteil der gemischten globalen Portfolios wurde im Berichtsmonat leicht gesenkt.

Die durchschnittliche Kassenhaltung in den globalen gemischten Portfolios stieg im Betrachtungszeitraum an.

Does ETFs' Reputed Tax Efficiency Pass Audit?

lipperclientservices@thomsonreuters.com — Tue, 13 Dec 2005 00:00:00 Z

- Not all ETFs are always tax-efficient. Results vary by market phase and by investment focus.
- During 1995-1999 ETFs clearly performed as advertised; in 2000-2004 the advantage was not as clear.
- Thinking on tax efficiency should be expanded to include income distributions, not just capital gains alone.
- A fund or ETF can, ironically, get high scores for tax efficiency if its total performance is consistently bad.
- Market cycles have, and may again in the future, drive shifts in the apparent tax efficiency of ETFs.
- Specific events (e.g., cash acquisitions or single-stock exemplary performance) cause specific-fund tax events.
- Use of averages should be done very cautiously, since means may not well represent modal behavior.

Choosing Funds Based on Past Performance–Is That the Best Thing to Do?

lipperclientservices@thomsonreuters.com — Mon, 12 Dec 2005 00:00:00 Z

• Using excellent past performance as the sole criterion to choose a fund is undependable.
• For some funds the past performance pattern will persist for just three months; in other cases the performance pattern will persist for 12 months or possibly more.
• In all cases performance patterns persist only for as long as the style, sector or classification continues to perform well, e.g., if value funds have done well for the last 12 months and then do well for the next 12 months, using excellent past performance is a good way to screen funds.
• If the sector performance pattern does not persist, then that excellent fund could drop to the bottom of the pack in the next 12 months.

Slow Flows: Where Investors' Money Is and Isn't Going

lipperclientservices@thomsonreuters.com — Thu, 01 Dec 2005 00:00:00 Z

• Although the stock market is up from late-2004 levels, net flows into stock and mixed-equity funds are smaller.
• Net flows are increasingly volatile on a month-to-month basis, driven by short-term market direction.
• Overall net flows to equity funds only mildly exceed those going to 401(k) plans alone.
• A few brands have been getting all or more than 100% of net flows since the trading scandal.
• ETFs are capturing a rising but still minority share of net flows.
• Currently, investors strongly favor income and value (plus international investing) over other equity fund types.
• Life-cycle and life-stage funds are a major recent innovation attracting rising flows.

The Growing Attraction of Sector ETFs

lipperclientservices@thomsonreuters.com — Thu, 20 Oct 2005 00:00:00 Z

Sector Exchange Traded Funds (ETFs), a large subset of the overall ETFs population, provide an efficient way for investors, investment advisors, and fund managers to access various parts of the economy. As diversified baskets of securities traded like single stocks on major exchanges, they allow investors to select the sectors or industry groups that specifically meet their investment goals and to use either the long or short side as their strategies may dictate.

Investing At The Center

Wed, 19 Oct 2005 00:00:00 Z

In this study Lipper found that:
• Information ratio—a common tool used by plan sponsors, performance analysts, and investors—has some severe limitations.
• The same can be said for the tracking error, especially when it is used as a minimization tool, i.e., when a plan sponsor tries to form a portfolio of investments by minimizing the tracking error of each investment.
• Given these problems and our criticism in an earlier paper of the use of Sharpe ratios and similar tools , we recommend using the Fisher Information Index as a plan sponsor tool for fund performance review and potentially for the selection of securities.

A Comparison of Mutual Fund Expenses Across the Atlantic

lipperclientservices@thomsonreuters.com — Mon, 26 Sep 2005 00:00:00 Z

• U.S. mutual funds tend to have lower total annual expenses than their European cousins.

• Larger asset bases and tiered management fee schedules partially explain the variance in costs.

• While the U.S. is a single jurisdiction, the European funds industry is a collection of markets, resulting in different structures, distribution practices, and competitive pressures.

• Distribution expenses are difficult for European investors to quantify. In the U.S., firms’ distribution/marketing fees (known as “12b-1” fees) must be clearly disclosed.

• Mandated expense reviews and recent industry events involving fund costs help keep U.S. expenses in check.

Analysis of Fees & Expenses for Hong Kong Authorised Collective Funds

lipperclientservices@thomsonreuters.com — Tue, 30 Aug 2005 00:00:00 Z

This report gives a detailed overview of the levels of annual management fees and Total Expense Ratios (TERs) for Hong Kong-authorised funds. Specifically:

• The relative levels of annual fees and expenses for different asset classes and investment areas – as well as the difference in annual fees for retail and institutional investors. For example, the simple average TER for retail equity funds is over 2%.
• At fund promoter level, the report provides a comparison of average fee levels based on actively managed equity funds. For example, the asset-weighted average TER ranges from 1.05% to 3.23%.
• Annual management fee revenues generated by Hong Kong authorised funds are examined and estimated to be over US$ 5 billion (HKD 38.9 billion).
• Background notes on what a TER is and why it matters – particularly in light of increasing disclosure of these figures by fund companies.

Risk and Risk Measures

lipperclientservices@thomsonreuters.com — Wed, 24 Aug 2005 00:00:00 Z

In this paper we find:
· Standard deviation and related measures such as the Sharpe ratio and the Sortino ratio are not truly relevant to the management of risk.
· Their flaw comes from the fact that these risk measures basically protect you from background noise--the 80% of price movements from which no protection is needed.
· We define risk as the extreme events, the 1-in-10, 1-in-20, or greater chance of experiencing a loss. With these kinds of events Sharpe and Sortino ratios have a poor track record.
· We recommend the use of Value-at-Risk, Effective Return, Monte Carlo simulations, and other techniques to truly protect your own or your client's portfolio.

Multi-Cap Funds: A Rose By This Name Truly Is Different

lipperclientservices@thomsonreuters.com — Thu, 30 Jun 2005 00:00:00 Z

- The multi-cap designation is real, and its proper population exhibits meaningful differences on a variety of scales versus truly size-specialized funds.
- Analysts, boards, managers, financial advisers, and individual investors should take care to know what kinds of funds they actually are evaluating so that fair and therefore meaningful comparisons are used before decisions are made.
- Actual operating parameters of true multi-cap funds tend to be more favorable than weighted averages of other fund types.
- Performance is one area where the positive difference is very notable.
- In turnover and commissions costs, multi-cap funds do not excel, but differences across sizes remain crucial to recognize.

Securities Selection And Portfolio Optimization: Is Money Being Left On The Table?

lipperclientservices@thomsonreuters.com — Wed, 22 Jun 2005 00:00:00 Z

In this report we ask the questions:
· Can fund managers form better-performing portfolios of
stocks or bonds?
· In particular, can they take advantage of:
o Single-index Capital Asset Pricing Models (CAPM)
o Multi-factor models
o Generalized CAPM (G-CAPM) to improve stock and
bond mutual fund performance?

And we find the following answers:
· Using CAPM can increase gross annual returns by 70 basis points to 80 basis points.
· Using multi-factor models can increase gross annual returns by 200 basis points or more.
· Using G-CAPM can increase gross annual returns by 300 basis points or more.

Analysis of Annual Charges for UK Collective Funds

lipperclientservices@thomsonreuters.com — Thu, 26 May 2005 00:00:00 Z

This report highlights some key aspects relating to annual charges for UK collective funds. The report analyses the relative levels of annual charges for UK and ‘Offshore’ funds; annual management fee revenues generated across the industry; the relationship between fund size and fund charges; the relative levels of charges for retail and institutional share classes.

Asset Allocation: Do Commodity Funds, Gold Funds, And The Like Belong In Your Portfolio?

lipperclientservices@thomsonreuters.com — Wed, 25 May 2005 00:00:00 Z

In this report we find that:
· Investors interested in commodity funds such as those offered by Oppenheimer and PIMCO would benefit from holding them.
· The same is true but to a lesser extent for gold funds.
· However, given the history of commodity funds and gold funds, though they are good additions from a diversification standpoint, from a risk standpoint they are similar to investing in equity funds.
· Our suggestion is that an investor should always keep some exposure to commodities (including gold funds) and should overweight allocations to these types of funds if they are expected to perform better than equities.
· Natural resources (NR) funds are so highly (and regularly) correlated with diversified equity funds that we find NR funds add value only when they are expected to outperform diversified equity funds.
· Finally, we conclude that REIT funds belong in most investors' portfolios. They have varying amounts of correlation to bond and equity funds (so they are reasonably good diversification bets), and from a risk standpoint they are much closer to bond funds than to equity funds, so they should dampen the volatility of most portfolios.

There is a technical version of this report available entitled "Asset Allocation: The Use Of VAR And Kendall's Tau In Constructing Portfolios."

Asset Allocation: The Use Of VAR And Kendall's Tau In Constructing Portfolios

lipperclientservices@thomsonreuters.com — Tue, 24 May 2005 00:00:00 Z

In this study we find that:
· A strong relationship of correlation and risk exists between U.S. diversified equity funds.
· The same strong correlation and risk also exists between many short-term and long-term bond funds.
· Investors who actively manage their holdings would benefit from holding both large-cap and small-cap funds and would certainly benefit from selectively over- and underweighting those funds in line with expectations of the future returns of those funds. The same can be said for long-term and short-term bond fund holdings.
· International equity funds do not tend to add diversification to equity holdings, while international income funds do add diversification to bond holdings.
· International equity funds are best viewed as an economic substitute for domestic large-cap funds, especially large-cap core funds, and should be included in the large-cap/small-cap under-/overweight decision.
· Finally, commodity funds are clearly an asset class unto themselves and would certainly be a good diversification addition to most investors’ portfolios. However, given their equity-like risk profile, investors need to know that, though they can be well compensated for taking on the additional risk, the possibility of a monthly loss in the 10%-15% range is not out of the question.

There is a nontechnical version of this report available entitled "Asset Allocation: Do Commodity Funds, Gold Funds, And The Like Belong In Your Portfolio?"

Survivorship Bias in Mutual Funds: Is It As Important As Others Claim?

lipperclientservices@thomsonreuters.com — Mon, 09 May 2005 00:00:00 Z

In our recently completed study on survivorship bias in U.S. mutual funds, we find that:
· For bond funds--in particular, Corporate Debt A-Rated, Corporate Debt BBB-Rated, High Current Yield, and Investment-Grade Debt funds--not including “dead funds” in comparisons involving returns biases the conclusions drawn. The same is true of International (equity) funds and Balanced funds.

· However, for Global (equity) funds, Flexible funds, and several of the U.S. Diversified Equity fund classifications, survivorship bias doesn’t seem to matter at all, or it matters in some years and not in others.

· We think this patchwork quilt of results puts into doubt some of the prior studies done on survivorship bias. We say this because all prior studies of survivorship bias grouped diversified equity funds by style only. If we do the same with our data, i.e., ignore the fact that there are Large-Cap Growth funds as well as Small-, Mid-, and Multi-Cap Growth funds included, we get the same results as prior studies did: survivorship bias matters at all times and across all styles.

· We also find it is not necessarily the poorly performing funds that “die.” We hypothesize that some funds die apparently because fund management companies have “thrown in the towel.”

· Finally, we think survivorship bias, where it exists, is important for asset management firms and academic studies but not for the retail investors.

Life Cycle Funds: Fit for Life

lipperclientservices@thomsonreuters.com — Mon, 14 Mar 2005 00:00:00 Z

· In an environment where investors and plan sponsors are examining ways to improve participants’ success in saving for retirement, life cycle funds offer a well-diversified foundation for investment.
· This paper examines the two kinds of life cycle funds and their benefits for investors and plan sponsors.
· We also profile the various life cycle fund providers, tally their market shares, and show the asset allocations of their life cycle fund offerings.
· One of the fastest growing parts of the mutual fund world, assets in life cycle funds have more than doubled since 2000.

Observations On Frequent Trading At Mutual Funds

lipperclientservices@thomsonreuters.com — Mon, 03 Jan 2005 00:00:00 Z

Since 2003 senior analysts in Lipper's U.S. Research Department have analyzed publicly filed sales and redemptions data from mutual-fund companies. Our objective was to understand how widespread were the practices related to so-called "market timing" by aggressive traders in mutual funds. We prefer and use the term "shareholder money churn" or simply "churn" for brevity. This study explains the relevant data and Lipper's related calculations and methodology. We believe, based on our work, that rising fund redemption levels (probably indicating churn) began to appear at some firms as early as 1996. Our calculations also show high redemption levels (defined below) that do not seem to be confined to just a handful of firms.

Opportunities In Closed-End World Equity Funds: Tax Loss Carryforwards

lipperclientservices@thomsonreuters.com — Wed, 15 Dec 2004 00:00:00 Z

Now is the time of year for mutual fund investors to consider taking year-end tax-saving steps. One of the golden rules of investing is to defer gains into the next year, while accelerating losses in the current year. The purpose of this study is to assess the outlook for capital gains distributions for international closed-end funds traded on the NYSE and AMEX. The study shows that there are instances when funds that are otherwise very similar but have different potential tax burdens trade at very similar discounts. Other instances show the value of premiums/discounts to be unrelated to tax burdens. The conclusion is that there is an opportunity for investors to benefit from including potential tax burden as one of their investment criteria, by searching out funds within their chosen asset classes that have similar risk/return characteristics to their peers but that have wider-than-average discounts along with higher-than-average net tax benefits.

December: Distributions And Maybe Decision Time For Funds Investors . . .

lipperclientservices@thomsonreuters.com — Tue, 07 Dec 2004 00:00:00 Z

The following material was taken from an interview on KRCN Radio/AM-1060 in Denver, with Lipper Senior Research Analyst Don Cassidy on Tuesday morning, December 7, 2004. With the year-end rapidly approaching and mutual fund distributions on many fund investors' minds, we thought this interview might be of use to you.

Summary Points:
· December is fund-distributions time, implying possible decision time for investors.
· Hold versus sell if one already owns; buy later versus now if considering a purchase.
· Important only for taxable accounts, not IRAs or employee-investment plans.
· How to find out how much and when.
· www.LipperLeaders.com as good source for historical tax efficiency.

The Future Is Now: The AMEX's Solution To The Active ETF Riddle

lipperclientservices@thomsonreuters.com — Mon, 06 Dec 2004 00:00:00 Z

· In this, the last of a two-part series on actively managed exchange-traded funds (ETFs), we summarize a speech given recently by Tony Baker (Managing Director, New Product Development at the American Stock Exchange) to Lipper’s Client Advisory Council. Mr. Baker’s speech describes the benefits of actively managed ETFs for both fund companies and investors and offers the AMEX’s solution to the creation of active ETFs.

· With the exception of the recently launched streetTRACKS Gold Shares (GLD), a fundamental characteristic of existing ETFs traded in the U.S. is that they are based on specific domestic or foreign market indices. An index-based ETF seeks to track the performance of an index by holding in its portfolio either the contents of the index or a representative sample of the securities in the index.

· Recently, the concept of an actively managed ETF has attracted significant attention, even though many of the details regarding the potential operations of actively managed ETFs are still being developed. Unlike an index-based ETF, an actively managed ETF does not have an objective of tracking the return of a particular index by replicating or sampling index securities. Instead, an actively managed ETF's investment advisor can select securities consistent with the ETF's investment objectives and policies without reference to the composition of an index.

Gary Gastineau On Why Actively Managed Exchange-Traded Funds Can Be the Greatest Thing Since Money Market Funds

lipperclientservices@thomsonreuters.com — Tue, 30 Nov 2004 00:00:00 Z

· This report is the first of a two-part series on actively managed ETFs, in which we summarize a speech given recently by Gary Gastineau, Managing Director of ETF Consultants LLC, to Lipper’s Client Advisory Council. The speech is entitled Actively Managed Exchange-Traded Funds Can Be the Greatest Thing Since Money Market Funds.

· The growing interest in exchange-traded funds ("ETFs") is one of the notable developments in the area of investment management over the past few years. A fundamental characteristic of all existing ETFs traded in the U.S. is that they are based on specific domestic or foreign market indices. An index-based ETF seeks to track the performance of an index by holding in its portfolio either the contents of the index or a representative sample of the securities in the index.

· Recently, the concept of an actively managed ETF has attracted significant attention, even though many of the details regarding the potential operations of actively managed ETFs are still in development. Unlike an index-based ETF, an actively managed ETF does not have an objective of tracking the return of a particular index by replicating or sampling index securities. Instead, an actively managed ETF's investment advisor can select securities consistent with the ETF's investment objectives and policies without reference to the composition of an index.