Across My Desk: What's in a name?
What's in a name? Plenty. Sometimes.
From Morningstar's Gregg Wolper's piece, When Fund Names Don't Tell the Whole Story, Feb. 2008. Wolper is a senior mutual-fund analyst with Morningstar.com.
"A few years ago, the SEC tightened the rule that requires mutual funds to invest in what their names indicate they own. In response, many funds either shuffled their holdings to better reflect their names and mandates or adopted new names and altered their mandates.
Even now, though, one can't always tell for sure what a fund invests in simply from looking at its name. Not that we think that every fund should adopt "Large Cap Core" or a similarly specific--and dull--moniker. In fact, the freedom allowed by vague names such as "Clipper Fund" has its benefits. But be aware that more-specific names still allow wiggle room, and it therefore pays to do your research.
That's especially true with international funds whose names cite a certain region or subregion. We've found a few whose portfolios might surprise an unsuspecting investor who didn't check the contents before buying. To be clear, these funds aren't breaking any rules. The point is to impress upon you the importance of checking under the hood even when a fund's name seems to tell all.
Fidelity Southeast Asia (FSEAX)
Given that even formal boundaries between countries can be disputed, it's no surprise that the demarcations between regions often are less than clear-cut. So, investors buying Fidelity Southeast Asia might reasonably assume that the fund would focus on countries located much further down on the ol' wall map. But according to Fidelity's figures, at the end of 2007 this fund devoted nearly 30% of its assets to Korea, more than any other market. So, given the fund's name, its holdings may surprise or disappoint investors who think they're buying a portfolio limited to markets actually located in Southeast Asia--and who aren't looking for an extra dose of Samsung Electronics.
T. Rowe Price Africa & Middle East (TRAMX)
While all of the fund's money is invested in Africa and the Middle East, the fund's name might intrigue investors who've heard about growth rates in certain sub-Saharan countries that defy the general public's stereotypical view of the region as unfit for serious investment. But this vehicle won't help you jump on that trend:
In the Jan. 31, 2008, portfolio, the only sub-Saharan market represented (except for the well- established South African market, which features prominently in broad emerging-markets funds) is a 1.4% stake in Nigeria. Even South Africa gets only a 9% allocation. Other than that, the entire portfolio is in the United Arab Emirates, Egypt, and other states in the Middle East.
At some point this may become more of an Africa fund. For now, though, it's best to ignore the name and think of it as a Middle East vehicle first.
Vanguard Pacific Stock Index (VPACX)
This fund is mainly a Japan and Australia portfolio. In fact, it's not unusual for nearly 90% of assets to be in those two countries, with the vast majority in Japan. The rest of the portfolio consists only of stakes in Hong Kong, Singapore, and New Zealand. As far as this fund is concerned, the Pacific region doesn't include China, Taiwan, Korea, Indonesia, or any other market that you might expect to pop up here.
Why such an unusual mix? Because that's how the fund's MSCI benchmark is constructed. The fund's mission is to match that benchmark, and it has accomplished that quite successfully over time. If you're looking for broader exposure to the region, though, look elsewhere.
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