"Of Mutual Interest" With Dan Wiener of Vanguard Investors & James Lowell of Fidelity Investor
Tuesday, February 03, 2009PAUL KANGAS: The market meltdown over the past year hit Fidelity and Vanguard mutual funds hard. In tonight's "Of Mutual Interest" segment, a look at how these giant fund families and their investors are coping. We're talking with editors of two newsletters that follow the companies but are not affiliated with them. Dan Wiener of the Independent Advisor for Vanguard investors and James Lowell of Fidelity Investor. Dan and Jim, welcome back to NIGHTLY BUSINESS REPORT. Good to have you.
DAN WIENER, EDITOR, INDEPENDENT ADVISER/VANGUARD INVESTORS: Nice to be back.
JIM LOWELL, EDITOR, FIDELITY INVESTOR: Good to be here.
KANGAS: Dan, many viewers have retirement savings in mutual funds and have had big losses. Should viewers be concerned about the stability of Vanguard or other fund families?
WIENER: No, I don't think so, particularly the big fund families like Vanguard and Fidelity are well capitalized and they are still seeing net inflows of new money. I would worry about small fund families, but not the big guys.
KANGAS: Jim, what are you telling investors about this market?
LOWELL: I'm telling them it's a scary place to put new money to work, but they need to do it. We are looking at valuations that are more attractive today than clearly they were a year ago, probably some of the best wealth building opportunities in our lifetime are presenting themselves to us, even though it feels like it's the best of times to just stuff that money in a mattress.
KANGAS: I understand at Fidelity that a lot of money has moved out of funds, leading to layoffs and even rumors the firms could be sold. Should Fidelity investors be concerned?
LOWELL: I don't think there's any reason to worry at all from a Fidelity investor standpoint. Their funds are second to none, maybe second to Vanguard. But I do think that there is concern whenever you see the layoffs beginning to come out of these fund firms. It does mean that the fund firms are feeling some pressures on their margins from the bear market, no doubt about it.
KANGAS: Dan, I understand there have been big management changes at Vanguard. Will that make any difference to Vanguard investors?
WIENER: No. They don't make a difference at all. There have been some changes at the top. One of the big changes though that's coming down the pike and which Vanguard has not talked about is that the person who is in charge of hiring all their outside managers, the portfolio review department, the guy I call the manager of managers, is leaving and a new person is taking his place. Now, they're responsible for hiring and firing all the outside managers at Vanguard. That's a big deal, but we'll have to see how that works out.
KANGAS: Let's get your fund picks for 2009, Dan. We'll start with you and tell us what your top fund for this year is.
WIENER: Well, Dividend Growth (VDIGX) is a fund that used to be a utilities fund. It's now run by Don Killbride at Wellington management, terrific manager, fairly concentrated portfolio. His largest holding is Total, the oil and gas company. I also like corporate bonds, the yield spreads between corporate and Treasury bonds as in the municipal bond area are tremendous. I think that you get your biggest bang right now in the corporate area. And then so Vanguard's got a couple short-term investment grade fund (VFSTX) and the intermediate term investment grade fund (VWESX) and I never count out the team at prime cap management. They run three funds at Vanguard. One of them is still open, prime cap core (VPCCX) and if you can't afford the $10,000 minimum, they have three funds called the prime cap odyssey funds that are non-Vanguard, but run the same way, same managers. KANGAS: OK. Very good. How about picks from the Fidelity man here. LOWELL: Fidelity has a fund called low priced stock (FLPSX), which was closed to new investors for quite a while, just reopened last December. (INAUDIBLE) has the single best recession oriented stock picker your money can buy.
KANGAS: A question often arises, why did they close that fund?
LOWELL: It's typically left up to the manager, and I think Joel wanted to basically shelter shareholders from a flood of new assets that came into the fund the last time he reopened it.
KANGAS: OK, that doesn't happen very often though, does it?
LOWELL: It doesn't, but Fidelity managers are fairly quick to close a fund if they think they can't put that money to work. And one of the things we know about Joel (INAUDIBLE) is when he reopens the fund, it's a stealthful market call. On average, whenever he's reopened the fund, the market has rallied three months hence.
KANGAS: How about a couple more picks?
LOWELL: Sure, I love Fidelity Magellan (FMAGX), one of the worst performing funds in Fidelity's stable last year. But that's because it's got a global growth orientation. But the long-term track record of manager Harry Lang picking stocks both domestic and abroad is basically unbeatable for investors, people with a horizon greater than five years. I also like Total bond (FTBFX), which owns many corporate bonds, something that Dan and I certainly agree on. It's also chock full of mortgage-backed bonds. That's why the Fed is buying up the market. I think you can't go wrong in those three.
KANGAS: We're talking about bonds, Jim. Many investors want to know how to get income. Should they be sticking with ultra safe Treasury funds or is it time to look elsewhere into the bond market?
LOWELL: It's a good question. It's a tough question with no real easy answer. But Dan and I are convinced that there's a bubble building in the long-term Treasury market, where everybody thinks safety basically resides. We think there's profound risk. So we prefer to seek yield in beaten up, overlooked, unloved places like the corporate market.
KANGAS: Jim and Dan, let's hope your fund picks turn out to be big winners and we'll be looking forward to your next visit.
LOWELL: Thank you.
KANGAS: My guests Jim Lowell of Fidelity Investor and Dan Wiener of the independent advisor for Vanguard Investors.
