Products September 10, 2007

Fidelity, Sungard Introduce New Trading and Custody Platform Services

September 10, 2007 (PLANSPONSOR.com) - Fidelity Investments and SunGard have announced the addition of new services to their integrated trading and custody platform for trust institutions and third party administrators (TPAs), including a directed trustee services program, a payment and reporting program for brokers who support retirement plans, and an online revenue management tool.
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The Directed Trustee Services program helps TPAs that custody assets with Fidelity to streamline management of qualified retirement plans by providing access to the professional trustee services offered by Fidelity Personal Trust Company, the announcement said. Through Directed Trustee Services, plan sponsors can access fiduciary services to help reduce risk, audit expenses, and administrative costs.

Paying Agent Services provide administrative support of contribution, distribution and loan processing, status reports on distributions, and IRS Form 1099-R tax reporting. Paying Agent Services can be bundled with Directed Trustee Services or are available on an unbundled basis, according to the announcement.

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The Fidelity Institutional Broker Network is a program for broker/dealers and their representatives who service retirement plans through a TPA relationship. For broker/dealer firms, the service can act as a compliance resource and also provides automated payments of asset-based fees to broker/dealers through the NSCC Commission Settlement Service. The service also provides reporting to fund companies of broker/dealer representative relationships to the retirement plans and a Web application designed exclusively for broker/dealers.

The online revenue management tool helps TPAs monitor commission payments from multiple fund companies across the multiple retirement plans they service. Data is refreshed daily and the system confirms payments by account, position, and payment instructions and supports information searches by a number of criteria, including plan name/account number, security, broker/dealer, and payment type.

Clients can print a consolidated report directly from the revenue management system or export the information to a spreadsheet.

The Fidelity/SunGard integrated trading and custody platform utilizes the capabilities of the SunGard Transaction Network (STN).

More information can be found at  www.sungard.com .

Administration September 8, 2007

Study Finds More Actively Managed Funds Have Higher Performance

August 21, 2006 (PLANSPONSOR.com) - A study from researchers at the Yale School of Management has found that more actively managed funds tend to consistently beat benchmark performance.
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In their paper, Martijn Cremers and Antti Petajisto start with the hypothesis that the more active the fund, the higher its average gross return (before fees and expenses). The researchers developed a measurement they call Active Share, which measures “the fraction of the portfolio that is different from the index.”

The authors note the average fund loses to its benchmark index by 0.33% per year. According to Cremers and Petajisto, the traditionally used measurement of tracking error does not help much when picking funds since their analysis across all tracking error quintiles showed consistently negative benchmark-adjusted returns and alphas.

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However, the researchers’ measurement of Active Share does help when picking funds. The difference in benchmark-adjusted return between the highest and lowest Active Share quintiles is 2.81% per year, according to the study paper.

Further, investors should choose funds in the highest Active Share quintile, the researchers said, since funds in the highest Active Share quintile beat their benchmarks by 1.39%. Funds with the lowest Active Share essentially had performance equal to their benchmarks.

When combined with tracking error, the study found that more actively managed funds performed better regardless of tracking error, with high Active share/high tracking error funds performing best.

Additionally, when controlling for size, the study found Active Share was directly related to better performance. Excluding the largest 40% of funds, the highest Active Share funds’ stock picks outperformed their benchmarks by about 2-4% per year. The more actively managed funds in the largest 40% also outperformed their benchmarks, but the researchers concluded the results were not statistically significant.

The researchers noted that prior studies have shown the average fund slightly outperforms the market before expenses and underperforms after expenses. They conclude from their study that funds with the highest Active Share significantly outperform their benchmarks both before and after expenses, while funds with the lowest Active Share underperform after expenses.

The study “How Active is Your Fund Manager? A New Measure That Predicts Performance” is  here .

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