Longleaf International Cuts Fees, Quits Hedging

• By Ryan Leggio
• On 12:51 pm EDT, Thursday September 24, 2009

Longleaf Partners International's (NASDAQ:LLINX - News) expense ratio will drop dramatically. The fund's advisor, Southeastern Asset Management, announced today that it is cutting its management fee sharply as of Oct. 1.

This is welcome news. The fund's 1.69% expense ratio is one of the highest of the 123 no-load, actively managed international-stock mutual funds with more than $1 billion in assets.

Southeastern said it has agreed to drop its management fee from 1.50% to 1.20% for the first $2.5 billion in assets. According to Southeastern, this 20% drop in fees means the fund's expense ratio will drop 30 basis points, or hundredths of a percent, to about 1.39% if the asset level stays the same. Expenses will fall further if this $2.2 billion fund grows to more than $2.5 billion in assets, because the management fee will drop from 1.25% to 1.00% for assets over this amount.

Southeastern reduced its fees because the firm has added a number of global and international accounts over the last decade, enabling it to expand its overseas research team while spreading the costs over a larger asset base.

Even after the fee reduction, the fund will still be more expensive than most no-load international large-cap funds of similar size.

In other news, the fund's advisor announced it would no longer routinely hedge the fund's economic exposure to foreign currencies. It is only one of a few foreign-stock funds that have a policy of hedging most currency exposure into the dollar. This hedging can help as the dollar appreciates against other global currencies but can also act as a strong head wind if the dollar depreciates for sustained periods, as it has lately.

Southeastern said some of it clients wanted to manage all of their currency exposure themselves while others prefer no hedging at all. The change will take place gradually and no later than June 30, 2010.

Fidelity Recalibrates Target-Date, Asset-Allocation Funds
Fidelity said it would increase the helpings of international stocks in its target-date Freedom Funds and other asset-allocation funds this week. The Freedom Funds also will add a new Treasury Inflation-Protected Securities fund and a new commodities fund to their portfolio mix: Fidelity Series Commodity Strategy and Fidelity Series Inflation-Protected Bond Index.

Several factors led to the increased international exposure, Fidelity said. Non-U.S. markets now account for more than half the world equity market capitalization, and the firm thinks the risks of overseas investing have diminished due to improved foreign market conditions. Over the next several months, all of the Freedom Funds, as well as other funds such as the Four-in-One Index (NASDAQ:FFNOX - News) will begin to increase their exposure to international-equity funds, to 30%of their stock allocation from 20%.

To combat the rising risks of inflation, the firm decided to add commodity exposure, as their research found commodities historically have provided inflation protection.

TIPS add additional fixed-income diversification and further inflation protection, Fidelity said. Other firms, such as Invesco AIM, have not included TIPS in similar funds. They've opted for short-term U.S. Treasury bills because their research concluded TIPS are less liquid, have a lower long-term expected returns, and aren't much better at resisting inflation than short Treasuries.

The changes affect more than 5 million shareholders who have invested nearly $90 billion in the various Fidelity funds.

Vanguard Changes Bond Benchmarks
The Vanguard Government Bond Index Funds ( Short-Term (NASDAQ:VBISX - News), Intermediate-Term (NASDAQ:VBIIX - News), and Long-Term (NASDAQ:VBLTX - News)), Vanguard Total Bond Market Index (NASDAQ:VBMFX - News), and Vanguard Balanced Index (NASDAQ:VBINX - News) will change their target indexes to float-adjusted indexes. Click here for more on this topic.

Artio Completes IPO
Today, Artio Global Investors, the U.S.-based asset-management subsidiary of Julius Baer Holding Ltd., completed its initial public offering on the New York Stock Exchange (ticker: ). The firm is best known for $11 billion Artio International Equity (NASDAQ:BJBIX - News), managed by CEO Richard Pell and Rudolph-Riad Younes, head of international equity.

Etc.
Putnam announced its RetirementReady Funds' allocations will include its absolute return funds as underlying investments.

Fidelity announced Court Dignan will replace Brian Wilhelm at Fidelity Select Insurance (NASDAQ:FSPCX - News).

Pending shareholder approval, RiverSource Partners Aggressive Growth (NASDAQ:ASGFX - News) and RiverSource Partners Select Value (NASDAQ:AXVAX - News) will merge with RiverSource Mid Cap Growth (NASDAQ:INVPX - News). The merger will take place in early 2010. Aggressive Growth is a small fund and partly subadvised by Glenn Fogle of American Century, who recently took a leave of absence.

Pending shareholder approval, MTB Multi Cap Growth (NASDAQ:ARGAX - News), is merging with MTB Mid-Cap Growth (NASDAQ:AMCRX - News).

Calamos will liquidate 130/30 Equity (NASDAQ:CELSX - News) on Sept. 30, 2009.

Summit Large Cap Growth (NASDAQ:SLGGX - News) will liquidate on Sept. 30, 2009.

Eaton Vance closed four municipal funds on Sept. 18, 2009: Eaton Vance MS Municipals (NASDAQ:ETMSX - News), Eaton Vance VA Municipals (NASDAQ:ETVAX - News), Eaton Vance HI Municipals (NASDAQ:ETHWX - News), and Eaton Vance OH Limited Maturity Municipals (NASDAQ:EXOHX - News).

MassMutual Premier Strategic Income (NASDAQ:MSCAX - News) was merged into Oppenheimer Strategic Income (NASDAQ:IOSIX - News) on Sept. 22, 2009.

PNC Diversified Real Estate (NASDAQ:PVRAX - News) will be liquidated by Nov. 27, 2009.

Two mergers at First American Funds are awaiting shareholder approval: First American Arizona Tax-Free (NASDAQ:FAAZX - News) is merging into First American Tax-Free (NASDAQ:FJNTX - News), and First American US Government Mortgage (NASDAQ:ARUGX - News) is merging into First American Intermediate Government Bond (NASDAQ:FIGAX - News).

Old Mutual International Bond (NASDAQ:OBIMX - News) will liquidate all assets by Nov. 9, 2009.

Shareholders of Hartford Large Cap Growth HLS (NASDAQ:HBCIX - News) approved a merger of the fund with Hartford Growth Opportunities HLS (NASDAQ:HAGOX - News).

Ryan Leggio does not own shares in any of the securities mentioned above.

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