Selected Recent Articles as 2011 Ends

Wal-Mart & Plan Trustee Settle 401(k) Fee Lawsuit (Pensions & Investments)

In this lawsuit Wal-Mart is alleged to have caused 1.2 million participants -- current and former employees -- in the Wal-Mart 401(k) plan to bear the cost of excessive fees.  The allegedly excessive fees include monies collected by the plan's trustee from mutual fund companies with high cost funds provided to plan participants.

In the settlement, which requires court approval, participants will not receive any of the $13.5 million settlement proceeds directly.  Also noteworthy are that prescriptive measures are indefinite.  For example, low-cost passively managed funds will be added to plan offerings "when appropriate."

The alleged facts and the lawsuit are ironic given Wal-Mart's legendary hard-nosed, cost-cutting dealings with merchandise vendors.


Hedge Funds Have Had a Not Good Year  (The Economist) 

"The average hedge fund has fallen by around 9% this year; the S&P 500 has fallen by just 3.4%."  A personal point of view:  over the truly long run, and on average after adjusting for survivorship, backfill, and other statistical biases, hedge funds will underperform a diversified portfolio of indices by the amount by which their all-in management and investment, etc. costs exceed the all-in equivalent costs of such indices.


How Accurate are Published Hedge Fund Performance Reports?  (Investment News)

This article (subscription required) reports on criticism of "emerging" hedge funds' performance studies - unfortunately relied upon to an extent by institutional investors and their consultants - because those studies don't account for survivorship and backfill biases.


Vanguard Passes iShares in Bond ETF Duel (Rick Ferri)

Further to an earlier post here about how Vanguard is taking ETF market share from Black Rock's iShares because of Vanguard's lower costs, Rick Ferri notes a milestone:  the Vanguard Total Bond Market ETF now has more assets than the iShares Barclays U.S. Aggregate Bond Fund, having overtaken the iShares fund as of December 1st.  Heightening the greater net inflows to the Vanguard fund are today's lower fixed income yields, which magnify the Vanguard costs advantage.


 Indexing Revolution Opens New Front: Bonds (Bloomberg)

This informative Bloomberg article notes how active bond-fund managers are just beginning to lose assets under management to passive bond funds.  The article notes that eight out of ten bond-fund managers have underperformed the U.S. market over the past 20 years.  Notable quotes:  "Bond index funds have been the unsung heroes in the index wars," said Dan Wiener, chairman of Adviser Investments.  "I think you're going to see a huge movement into indexation of bonds - much lower fees," said BlackRock CEO Laurence Fink.

Happy Holidays!