Compliance October 16, 2009

Q3 Securities Litigation Driven by New Charges

The third quarter saw a robust 169 new securities lawsuits filed, but the credit crisis is no longer leading the litigation charge, according to Advisen’s quarterly update on securities litigation.

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The 169 suits filed in the third quarter represent an 11% increase over the second quarter’s total (see “Securities Cases on Downslope”), but still significantly trail the 249 suits filed in the first quarter, which was dominated by suits arising from the credit crisis, as well as suits against firms tied to the Bernard Madoff Ponzi scheme. Both securities class action and securities fraud cases grew solidly in Q3, representing approximately three-quarters of all securities lawsuit filings, the report said.

Securities class action suits (SCAS), no longer leading the pack, showed a bit of a comeback with 55 cases filed in Q3 2009, up from 38 cases the quarter before, but down from 59 cases a year earlier. Securities fraud filings led the way for the third straight quarter with 70 cases, up from 50 in the second quarter. Although they fell short of the 92 securities fraud suits in the first quarter, securities fraud cases represented 41% of all securities cases, an all-time high.

In third place was breach of fiduciary duty suits, at 27. The top three types of suits made up 90% of all suits for the third quarter. Other types of cases filed in Q3 2009 were derivative shareholder actions and other derivative cases (nine) and Ponzi scheme and other cases (eight).

Madoff-related and credit crisis-related cases dropped off substantially. Madoff-related new filings fell to six cases in Q3 2009, down from 17 cases in Q2 and 54 in the first quarter. Credit crisis-related cases came in at nine cases in Q3 2009, down from 24 cases in Q2 and 46 in Q1.

The report is available here.


 




The Markets October 16, 2009

Target Maturity Funds See Another Positive Quarter

Target maturity funds enjoyed their second quarter in a row of positive returns, and on an annual basis significantly outperformed the S&P 500 Index, according to the Ibbotson Target Maturity Report for Q3 2009.

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The report said 173 of the 319 funds with at least a one-year history ended the most recent quarter with a positive annual return.

The average target maturity fund returned 14.1% during the third quarter, slightly below the S&P 500 Index, which gained 15.6%. The weighted-average return of the 13 indexes that collectively form the Morningstar Lifetime Moderate Index family was 14.1%. On a one-year basis, the average target maturity is slightly positive, with a return of 0.44%. The Morningstar Lifetime Moderate Index family gained 2% over the last 12 months, while the S&P 500 Index lost 6.9%.

The average 2010 fund earned 9.8% in the third quarter, while the average 2020 fund posted an 11% gain, according to the Morningstar data. The average 2030 fund saw a 15.1% rate of return, and the average 2040 fund gained 16.1%. The gain for the average 2050 fund was 16.8%.

All of the asset classes that typically make up target maturity funds had positive returns again in quarter three. High yield bonds produced equity-like returns of 14.2% helping the performance of target maturity funds that implement a portion of their fixed-income asset allocation with high yield.

The equity asset classes all produced double-digit positive returns. Emerging market stocks (21% quarterly return), non-U.S. developed stocks (19.5%), U.S. small value (22.7%), and real estate (33.3%) were the standout performers, helping funds with higher than average exposures to these asset classes.

Estimated flows into target maturity funds slowed in the third quarter as compared to the second quarter, as measured by flows as percentage of beginning AUM. Ibbotson said contributions to funds in the 2021 to 2050+ range peaked in the first quarter of 2009 and have been decelerating ever since. Meanwhile, Retirement Income and the categories ranging from 2000 to 2020 have continued to enjoy increasing quarterly growth in flows.

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