Fund Times: 15 – 19 September

Woodford Replaces Fidelity on Edinburgh Investment Trust
The Board of the Edinburgh Investment Trust announced this week that Invesco Asset Management’s Head of Investments, Neil Woodford, will takeover management of the company's £1bn of assets. Woodford replaced Fidelity manager Rita Grewal on 15th September. Grewal had managed the trust with Fidelity’s John Stavis before Stavis left on sabbatical at the end of June. Fidelity managers have run the trust for the last 5 years, but it has suffered a poor last 12 months with its net asset value falling over 22%, a significantly sharper loss than the FTSE All Share Index's 18% drop.

BlackRock to Remain Independent after Merrill Lynch Sale
Bank of America this week bought Merrill Lynch for $50bn as troubles at the investment bank mounted. Merrill owns 49.8% of BlackRock, and is a key distributor for BlackRock's funds via its global private client business. Earlier in 2008, BlackRock had taken steps to ensure that any change of control at Merrill would not jeapordise the distribution agreement. The revised rules said that if two thirds or more of Merrill's private client business changed hands, an automatic five-year extension of the global distribution agreement would be triggered. This has now occurred. Blackrock said in statement issued earlier this week: "This transaction will trigger a five-year extension of our Global Distribution Agreement, and our Shareholder Agreement will be in place to the later of July 2013 or when the investment in BlackRock drops to less than 20% of our shares. We look forward to working with BofA as an important partner to BlackRock."

New Star Loses £1.4 billion Mandate to Santander
Investment management group New Star will see its assets under management take a further hit as Family Assurance announced plans to move its £1.4bn mandate to Santander Asset Management UK. The assets represent around 7% of New Star's total AUM and will be transferred on 1st December. The mandate will be run on index tracking basis, a facility that New Star does not offer.

F&C Announce Changes to European Fund
F&C announced this week that from 1st October it will change the investment objective of its F&C European fund. At the same time the fund will be renamed F&C European Growth & Income. The previous objective focused on capital growth, it will now seek a high level of income coupled with medium to long term growth. As a result F&C will create a new income share class for the fund which will be distributed quarterly.

Russian Stock Exchange Suspended
On Tuesday of this week Russia’s two main stock exchanges, the dollar-denominated RTS and the rouble-denominated MICEX, were suspended after falling sharply amid concerns over Russia's war in Georgia and plummeting commodity prices. They remained closed until Friday, when they reopened to an upturn so strong that authorities suspended both exchanges twice during the trading day to assess the situation. Funds in Morningstar's Russia Equity category have fallen 42.4% on average thus far in 2008 in GBP terms. The popular Neptune Russia & Greater Russia fund has lost 41% so far this year.

Julius Baer Launches Luxury Brands Fund in UK
Julius Bear announced this week that it will launch its Luxury Brands fund into the UK. The fund looks to invest in companies its managers believe can securely and steadily build on their competitive position with an excellent brand, high-quality products and constant product innovation. The fund is managed by Dr Scilla Huan Sun, who has more than 17 years’ experience in asset management. The fund originally launched in Switzerland in January 2008, and investment will initially only be open to wealth managers, insurance companies, investment banks and fund of funds in the UK. The fund is not unique--it competes with other luxury brands offerings offered on the continent from KBC and ING, and SocGen's SGAM Fund Equities Luxury & Lifestyle.

Invesco Launches Japan and Agriculture ETFs
Invesco PowerShares this week announced the launch of two new exchange traded funds. The PowerShares Dynamic Japan ETF is based on the QSG Active Japan index, which uses a diverse multi-factor stock evaluation process to select stocks and form an equal-weighted (125 stocks with 0.80 per cent in each stock) Japan-focused portfolio that is reconstituted each calendar quarter. The second launch will be for the Global Agriculture Nasdaq OMX ETF which is based on the Nasdaq OMX Global Agriculture Index.

Barclays to Acquire Select Lehman Operations
Barclays this week agreed to buy Lehman Brothers’ North American investment banking and capital markets operations. The group said the acquisition would create a “global bulge bracket investment banking company with a leading presence in all major markets and across all major lines of business”. Barclays will acquire trading assets with a current estimated value of £40bn and trading liabilities with a current estimated value of £38bn for a cash consideration of £140m.

Fed Bails Out AIG with $85bn Loan
Embattled insurance giant AIG is to receive a bailout package from the US Federal Reserve worth $85bn in return for a government stake of nearly 80%. The move, which marks a sharp turn from the Fed's get tough stance on Lehman Brothers, will leave AIG under government control. The existing management team will be replaced by government–appointed representatives. The $85bn loan is designed to keep the company afloat until the company can arrange the sale of assets to repay it. Interest will accrue on the outstanding balance at 3m libor plus 8.5%. This suggests the group is unlikely to survive as a going concern and the Fed envisages an orderly liquidation. The Fed’s statement said that it had acted because a failure of AIG would: “Add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance”.

Counterparty Risk Hits Exchange Traded Commodities, Halts Trading in London, US
Most ETFs are open-end funds with all the rights and restrictions that pertain thereto, given their owners ownership in the assets held by the fund. However, exchange traded notes, whilst similar on the surface, are unsecured debt instruments based on futures contracts. This creates a counterparty risk that had largely been viewed as theoretical until this week. Not anymore. In the UK, the LSE halted electronic trading of 113 ETF Securities exchange-traded commodity offerings that were based on contracts where the counterparty (responsible for making payments to ensure holders of the ETNs received moneys due) was AIG Financial Products and their ability to pay was guaranteed by AIG. The firm says AIG has continued to meet its responsibilities. The LSE restarted trading on 33 of the leveraged commodity security offerings on Friday, but an additional 80 offerings remained suspended. In the US, three Lehman Brothers exchange-traded notes, which are unsecured debt offerings of the issuer, also halted trading. The Lehman ETNs affected are: Opta Lehman Brothers Commodity Index Pure Beta Total Return, Opta Lehman Brothers Commodity Index Pure Beta Agriculture Total Return, and Opta S&P Listed Private Equity Index Net Return.