Products July 30, 2008

MSCI Global Currency Indices Launch

MSCI Barra launched the MSCI Global Currency Indices.
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The indexes, which may be licensed for use for portfolio management and benchmarking purposes, as well as to serve as the basis of structured products and other index-linked investment vehicles such as exchange-traded funds (ETFs), reflect the performance of both the currency and interest rate returns of the developed and emerging market currencies in regional or composite MSCI equity indexes.

According to a release, the weights of each currency are set equal to the relevant country weight in the corresponding MSCI equity index. This index construction methodology enables institutional investors to measure the total investment performance of foreign currencies within an equity portfolio tracking an MSCI equity index. For example, an investor managing an emerging markets portfolio could use the MSCI Emerging Markets Currency Index to understand the impact of currency and interest rate returns on the performance of the MSCI Emerging Markets Index, or to hedge currency exposure via financial products linked to the index.

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“MSCI Barra is committed to providing innovative indices that reflect the performance of the opportunity set for particular investment themes or strategies,” said David Brierwood, COO, MSCI Barra, in the release. “The MSCI Global Currency Indices and the MSCI Short & Leveraged Indices are the latest products in the MSCI Thematic & Strategy Indices family to come to market, following on the heels of the recent launch of the MSCI Global Minimum Volatility Indices, the MSCI Commodity Producers Indices and the MSCI Agriculture & Food Chain Indices’.

Short, Leveraged Indices

The announcement notes that the MSCI Short & Leveraged Indices aim to reflect the actual investment process of managers who employ short and leveraged trading strategies by taking into account the main performance components: capital gains, cash dividends, and interest.

Additionally, the MSCI Short Indices incorporate stock borrowing costs, the first inidexes from a major index provider to do so, according to the firm.

Both the MSCI Global Currency Indices and the MSCI Short & Leveraged Indices are now available on request to eligible clients directly from MSCI Barra. Flagship indexes for the MSCI Short & Leveraged Indices were added to the existing MSCI equity index products on July 1. Flagship indexes for the MSCI Global Currency Indices will be added to the existing MSCI equity index products at a later date, according to the announcement.

Compliance July 30, 2008

Fidelity Sticks with Controversial Ads

TIAA-CREF has agreed to pull a controversial ad urging federal employees to roll over their assets, but Fidelity refusals to halt a similar ad.
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The TIAA-CREF ad urges federal employees to roll over their assets from the federal retirement savings plan without telling the workers they will encounter higher fees if they do.

The move by TIAA-CREF and a refusal by Fidelity Investments to stop running a similar ad were sparked by letters from U.S. Senator Herb Kohl (D-Wisconsin) demanding the two providers re-examine their marketing campaigns aimed at members and beneficiaries of the Federal Thrift Savings Program (TSP).

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In addition to Kohl’s contention that the TSP offers lower fees, a statement from the Senate Special Committee on Aging quotes Gregory Long, executive director of the Federal Retirement Thrift Investment Board, as pointing out that TSP members are able to leave their money in the fund when they separate from federal service. Kohl is chairman of the committee.

“Although these other products may be useful, they are not always the best choice for every consumer,” Kohl asserted in his letter to Fidelity CEO Edward Johnson III. “In particular, consumers can suffer unnecessary harm when they choose rollover plans that have higher fees than their original 401(k) plans. Therefore, it is of the utmost importance that consumers have complete, clear and concise information on all the terms of such products before making any decisions.”

Fidelity indicated in a letter that it would continue with its rollover ad campaign, which characterizes TSPs as “old’ and encourages participants to roll over their government accounts to a Fidelity 401(k) or IRA products.

“I applaud TIAA-CREF’s decision to pull the ads, and am disappointed that Fidelity has not chosen to follow suit,’ said Kohl, in the committee statement. “The TSP has the lowest administrative costs of any retirement program in the country and I think these misleading ads are a disservice to hard-working public servants.’

Fidelity defended its position in its response to Kohl: “Fidelity’s rollover IRA offers investors extensive investment flexibility with no additional account fee, the extra convenience of aggregating retirement assets, and financial guidance services.’

The Senate committee’s statement, including letters from the providers and examples of the controversial ads, is available here.

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