The Markets October 19, 2006

Active Managers Continue to Lag Passive Indices

The latest Standard & Poor's Indices Versus Active Funds Scorecard (SPIVA) results revealed the S&P 500 outperformed 80.3% of actively managed large-cap funds during the third quarter of 2006.
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The latest Standard & Poor’s Indices Versus Active Funds Scorecard (SPIVA) results revealed the S&P 500 outperformed 80.3% of actively managed large-cap funds during the third quarter of 2006.

An S&P press release said the S&P SmallCap 600 outperformed 50.8% of small-cap funds, however, actively managed mid-cap funds beat out the S&P MidCap 400 during the third quarter, with 69.4% of them posting better results.

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SPIVA results give a similar picture for year-to-date activity through September. According to the release indices lead actively managed large-cap and small-cap funds, with the S&P 500 outperforming 71.5% of large-cap funds, and the S&P SmallCap 600 outperforming 65.9% of small-cap funds. Meanwhile, 54.1% of active mid-cap funds have outperformed the S&P MidCap 400 for the year-to-date period.

“Through September, the S&P 500 has returned 8.52% with 66% of the return occurring during the third quarter,” said Rosanne Pane, Mutual Fund Strategist at Standard & Poor’s, in the release. “Sector rotation during the third quarter drove returns, which made it difficult for active managers following long-term investment strategies to successfully capture all of the sector moves,” she explained.

A majority of actively managed funds have lagged behind the indices for years. Past three-year and five-year data shows the S&P 500 beat out 68.1% (three-year) and 71% (five-year) of large-cap funds, the S&P MidCap 400 outperformed 66.9% and 83.6% of mid-cap funds, and the S&P SmallCap 600 outpaced 81.1% and 80.5% of small-cap funds, in the three-year and five-year periods, respectively.

As for international equities, year-to-date, indices continue to lead actively managed international funds. The S&P/Citigroup PMI World Index has outperformed 74.0% of actively managed global funds, in the year-to-date period. Meanwhile, the S&P/Citigroup PMI World ex U.S. has outpaced 64.9% of international funds, and the S&P/Citigroup EMI World ex U.S. has led 73.5% of international small company funds, according to SPIVA results.The S&P/IFCI Composite also has outperformed 77.9% of actively managed emerging markets funds. International indices lead actively managed funds over three- and five-year periods as well.

Finally, S&P reports that year-to-date, seven of eight domestic taxable fixed income indices have outpaced active funds, with short-term general funds being the only exception. The majority of global fixed income funds beat their benchmarks in two of three global fixed income styles.

The complete third quarter SPIVA scorecard and previous quarterly SPIVA reports are available at www.spiva.standardandpoors.com.

The Markets October 19, 2006

Product Briefs for Week of October 13, 2006

401kDIRECT Network (401kDIRECT, 401kTechTeam, & Pension Retirement Online) has introduced a "TOTAL Solutions Package" that will be available to qualified plans via the Plan's 401k Professional, whether it is a Broker, RIA, TPA, CPA, Benefit Consultant, etc. The package includes PlanTool's Risk Management System, the Retirement Analyst Participant Advice and Fiduciary Reporting Program, ICC Super Statements, plus ETFs that are sub-advised by portfolio strategist Barclays Global Investors (BGI), State Street Global, and other ETF Managers.
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401kDIRECT Network (401kDIRECT, 401kTechTeam, & Pension Retirement Online) has introduced a “TOTAL Solutions Package” that will be available to qualified plans via the Plan’s 401k Professional, whether it is a Broker, RIA, TPA, CPA, Benefit Consultant, etc. The package includes PlanTool’s Risk Management System, the Retirement Analyst Participant Advice and Fiduciary Reporting Program, ICC Super Statements, plus ETFs that are sub-advised by portfolio strategist Barclays Global Investors (BGI), State Street Global, and other ETF Managers.

Financial planning software provider AdviceAmerica, Inc., says that Harris Investor Services, an affiliate of Harris N.A., has selected AdviceAmerica’s financial planning solution, AdvisorVision, to enhance client service and grow revenue. AdvisorVision enables advisors to strengthen customer relationships and grow revenues through financial planning, actionable advice, and sophisticated asset allocation modeling, according to a press release.

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Paychex, Inc., has added the Paychex Roth 401(k), a Roth 401(k) feature, to its suite of retirement services. The Paychex Roth 401(k) feature offers small and medium-size businesses another way to save for retirement, according to the firm.

Following the recent launch of Aviva For Life, a retirement income solution aimed at the Boomer market, Aviva (Aviva Life Insurance Company) has announced plans to equip its agents with Web sites capable of streaming a multimedia educational presentation over the Internet. Offered at no cost to the agents, these Web sites will strengthen agents’ ability to objectively convey the benefits of Aviva For Life, including how the strategy ladders fixed annuities to generate durable retirement income, according to a press release.

T. Rowe Price has launched an enhanced suite of retirement – oriented Advisory Planning Services. As part of the services, the firm provides a complete portfolio evaluation and a detailed personalized recommendation for a suitable investment strategy along with how much the individual should be saving to meet retirement goals or spending in retirement, based on discussions that the investor has with a T. Rowe Price advisory counselor and a detailed questionnaire. The Advisory Planning Services are available for a one-time fee of $250.

SunGard has acquired ProNvest, Inc., a provider of retirement account management to plan participants through third party administrators (TPAs) and plan sponsors who use SunGard’s Relius, Omni and other recordkeeping solutions (See related story).

SEI has entered into a distribution agreement with NEXT Financial Group that will provide independent investment advisers greater access to SEI’s solutions and services through NEXT’s Global Management Account Program. This pilot program represents the first time that SEI has distributed itsown investment solutions to advises through a broker/dealer’s proprietary platform.

Lincoln Financial Group’s Employer Markets Division has announced the launch of Lincoln American Legacy Retirement. In addition to 20 investment options managed by American Funds, the product’s 46-fund offering includes the ability to choose from a variety of different asset managers including Delaware Investments, AllianceBernstein, Baron Funds, Fidelity Investments, Franklin Templeton Investments, MFS Investment Management, and Neuberger Berman, as well as the Lincoln VIP Profile lifestyle funds, a risk-based portfolio of funds of funds, managed by Wilshire Associates.

Fidelity Investments has announced the availability of Fidelity Lifetime Income Solutions (FLIS), an out-of-plan annuities selection program designed to help plan sponsors provide participants a way to convert some of their retirement savings into guaranteed lifetime income. According to a press release, FLIS assists plan sponsors and employees with the task of selecting and monitoring an annuity provider by pre-screening insurance carriers for creditworthiness, strength of management, long-term capacity, and competitive design.

brokersXpress, LLC, an online broker/dealer serving independent registered representatives and investment advisors, has added separately managed account (SMA) capabilities to its online brokerage platform. The SMA platform, provided by US Fiduciary, offers brokersXpress Investment Advisor Representatives and Registered Independent Advisors a range of investment choices, including multiple-style portfolios, managed mutual fund portfolios, alternative investments such as hedge funds and fund of funds, and unified managed accounts.

AIM Investments has announced the launch of AIM PlanForward Module 5 – Moving Upmarket, a marketing program that is designed to help financial advisers understand practice characteristics and best practices for the micro-, small-, midsize-, and large-plan market segments; set goals and plan strategies for each market; create a Business Planning Worksheet; and customize a Statement of Services for each client.

Pershing LLC, a subsidiary of The Bank of New York Company, Inc., has introduced a new reporting tool for fee-based brokerage accounts, designed to help Pershing’s introducing broker-dealer customers comply with NASD requirements and New York Stock Exchange Rule 405A, which call for introducing broker-dealers to determine if their clients are appropriate for fee-based brokerage accounts. The new reporting tool will enable introducing broker-dealers to monitor the activities of their clients’ fee-based brokerage accounts supported in Avail.

This month, Morningstar, Inc. will begin providing new data for open-end mutual funds and exchange-traded funds to capture how the average investor fared in a fund over a period of time. The new measure, called Morningstar Investor Return, estimates the return earned collectively by all the investors in a fund. Investor return, also known as dollar-weighted return, accounts for all cash inflows and outflows from purchases and sales and the growth in fund assets, complimenting the more traditional metric of total return, which measures what investors could have earned had they bought and held the fund, reinvesting all dividends, over a period of time.

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