The Vanguard Group said on Friday it has sacked the manager of its lagging U.S. Growth Fund.
Lincoln Capital Management, manager of the $12 billion fund since 1987, was dropped as adviser and replaced by a team from Alliance Capital Management (AC).
The fund, which has some 740,000 shareholders, was down 24.3 percent from the start of 2001 through Thursday. In the same period, according to fund-trackers Lipper, the average large cap growth fund was down 15.3 percent.
"Lincoln had done well for a long time before 1999 but they slipped quite badly," said Christopher Traulsen, an analyst at Morningstar Mutual Funds. He said the fund underperformed its peers by a large margin in 1999, which was an up year, and again in 2000 and 2001, which have been down years.
"You can't consistently underperform in up and down markets and expect people to retain faith in your abilities," the analyst said. The fund's performance was hurt by a shift to networking-type technology stocks in mid-2000 after those stocks had seen their peaks, Traulsen added.
In March of this year, Lincoln President David Fowler said that 12 months earlier, the fund had about 8 percent of its assets invested in Cisco Systems (CSCO). He said based on a judgement that the market had pushed the shares too high, the fund began selling some of the stock. But Cisco shares went into a 65 percent decline.
Cisco, as well as another holding, Sun Microsystems (SUNW) suffered from a "double whammy" where earnings fell and then the market valued those earnings at a lower multiple, Fowler said.
Traulsen said it is too early to say how the fund will fare under the new manager but he noted Vanguard is known for carefully monitoring its outside advisers.
Vanguard said the fund will continue to have a long-term focus on quality growth stocks with an emphasis on large-capitalization stocks. John Blundin and Christopher Toub of Alliance will serve as portfolio managers.
Vanguard said that the fund is not expected to realize any capital gains during the transition to the new manager and that the impact on the fund's expense ratio is expected to be negligible.
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Nortel gets lucky: Nortel Networks said it has agreed to two contracts to provide wireless infrastructure, including a $270 million deal with China Unicom.
Nortel (NT) will provide switching, radio base stations and transmission equipment for mobile communications to China Unicom (CHU), which aims to introduce high-speed wireless Internet services across China.
The expansion will increase the potential number of China Unicom subscribers served by Nortel systems to 11.6 million, from 7.1 million.
In the second deal, Nortel will supply high-speed wireless Internet equipment and services to Portuguese wireless operator Oni Way to help it build its network in the south of the country, including Lisbon.
The Oni Way contract was a welcome cash deal, an executive with Nortel said. Michael O'Hara, Nortel's chief marketing officer for Europe, the Middle East and Africa, described the contract for third-generation (3G) equipment as "significant."
Nortel warned last week of a $19.2 billion second-quarter loss as the telecom gear market dries up. Analysts have said they were keeping an eye on the Canadian company's cash flow. U.S. credit agencies have warned they may cut Nortel's credit rating, and Dominion Bond Rating Service trimmed its rating on Monday.
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Fed was wrong: A U.S. appeals court ruled that regulators violated bankruptcy rules when they repossessed valuable wireless licenses from NextWave Telecom when the company went bankrupt. The licenses have already been resold to other wireless companies.
The Federal Communications Commission repossessed 90 licenses NextWave won at auction in 1996 after the company was unable to pay on time the roughly $4 billion it bid for the licenses and eventually entered bankruptcy protection.
"We conclude that the commission violated the provision of the bankruptcy code that prohibits governmental entities from revoking debtors' licenses solely for failure to pay debts dischargeable in bankruptcy," the U.S. Court of Appeals for the District of Columbia said in its ruling.
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Cell-phone Quake in the UK: Hutchison 3G UK plans to lure customers from its established rivals by offering advanced high-speed Internet services for about the same price as current packages.
The Hong Kong-backed company intends to offer a "sparkling" bundle of music and sports content over its phones when it starts in the middle of next year, according to people familiar with its business plans.
It is in talks to offer a mobile version of Quake, the hugely popular multiplayer Internet computer game, and plans to set up a national chain of branded shops to sell its services.
But contrary to expectations, it does not plan to launch a version of partner NTT DoCoMo's (NTT) successful i-mode mobile Internet service in the UK, nor use i-mode technology, according to the sources.
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Reuters and AP contributed to this report.
