Fat cats test faith in US equity funds
Issues surrounding the remuneration of those entrusted with capital growth are putting a strain on investor confidence.
First it shamed photocopier manufacturer Xerox for having one of the most ineffective management boards in the US market. Then it voted against controversial pay awards at Glaxo in the UK. Now the California Public Employees Retirement System (Calpers) – the world’s largest pension fund with assets of $145bn (E128bn) – has been instrumental in the ousting of Richard Grasso from the helm of the New York Stock Exchange. Mr Grasso has apparently earned $140m since 1995. Calpers’ global war on fat cats, even if they are holed up within the American financial system, shows how crucial matters of remuneration and responsibility to both customers and shareholders are to market profits. According to Sean Harrigan, president of the Calpers board of administration, changes at NYSE had to be made in order to “restore investor credibility in financial markets”. US recovery Clearly, these giant, public institutional investors are more concerned than most about the prospects for continued recovery in US markets. Recent news has been encouraging, with the Dow Jones Industrial Average reaching a 15-month high. And amid stocks quantitively analysed for inclusion in Brainpower’s model global portfolio (pg 52), the top five, including Yahoo! and Amazon.com are US-based. The telling news is that US funds are once again appearing on the buy-lists of European distributors. But these funds must be carefully selected. Banque du Louvre, for instance, one of France’s largest distributors, recommends significant allocations to the Legg Mason America Value fund, one of the funds analysed in this month’s Product Parade. Variable performance Our research shows there is huge difference between the 10 biggest US equity funds sold across European borders. Nordea’s North American Value fund gained over 160 per cent in five years, against a negative S&P 500 return. Deka’s flagship US product lost 23.2 per cent over the same period. Total expense ratios – the sum of fees, not usually published by fund groups – also vary widely. Clerical Medical’s GNF US equity fund charges 1.31 per cent, while Credit Suisse’s CS EF (Lux) USA fund charges 2.07 per cent. Distributors need to ask the same questions as Calpers. Are these labourers worthy of their hire?
