Commentary: Shine More Light on Mutual Funds
Retirees today want all the information they can get

Ignorance may be bliss--but not for mutual-fund investors. The last thing they need are surprises about the stocks and bonds held by funds they've chosen. With their future riding on their asset allocations, investors must know the styles, objectives, and the stock picks of funds they've bought.

Unfortunately, fund managers don't always invest the way they promise. Nor do they make it easy to tell when they're changing their tack. And if fund companies and regulators get their way, the view could soon be a whole lot murkier.

Today, managers must mail their investors a complete tally of holdings twice a year. For a while, the Securities & Exchange Commission considered requiring more frequent reports. But funds protested--so the SEC is now in reverse. Officials may allow the semiannual mailing to list top holdings and summaries of other positions with the full list on the Web. The justification: Shareholders are already flooded with data and, managers say, they don't need to know.

The fund industry had better get back in touch with reality. The Internet overflows with tools to measure funds' vital statistics. Twice yearly isn't enough for reports. Investors want more information, not less. How else to explain the fervor over exchange-traded and indexed mutual funds? These no-nonsense investments deliver the market slices or baskets of stocks they promise--ideal for for allocation planning.

Managers love the Net's help in marketing their funds. But they fear that the more they disclose, the more day-traders can leap ahead of them, to buy or sell. Long-term investors are the losers, argues Craig Tyle, legal counsel for the Investment Company Institute (ICI) trade group. But all that advocates are seeking is monthly or quarterly reports of a fund's holdings--with a 30-day lag. By then, the data is too stale to give day-traders much help.

The fact is, most of the 25 largest fund companies already provide Morningstar with monthly holdings data for its screening tools. So investors can find out what they own--for a fee. But why don't funds tell their owners directly, and for free? ''Inertia,'' explains Morningstar Research Director John Rekenthaler.

NOT A WORD. Still, reform advocates aren't deterred. On June 20, Davis Nadig, co-founder of San Francisco fund manager, went to ICI's Washington headquarters to argue for openness. After he made a few-minute ''best passionate plea,'' Nadig says, the ICI boardroom resembled ''a scene from Dr. Strangelove. I was sitting with [75 fund lawyers] looking at me and not one saying a word.''

Nadig is taking his case to market. is one of several that report activity daily on the Net. Last year, it launched the $35.7 million OpenFund, which shows videocam picture of trades. ''We're using technology to change the industry,'' Nadig boasts. ''That's probably seen as a threat to the old guard.''

ICI members insist that most investors care only about performance, not methods. Montgomery Asset Management in San Francisco begs to differ: Its survey of 2,500 investors who bought mutual funds online this year found that 79% want more data on holdings. So Montgomery is launching Stock Solution, a series of focused funds, which will post complete holdings on its Web site ( every two weeks.

These are modest steps, but they're responding to a clear demand. If the SEC wants to be the investor's advocate, it should encourage more openness--not less.

Der Hovanesian covers finance from New York.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _


Retirement Guide MONEY
-Susan Scherreik on homes for retirement
-Bill Glasgall on smart retirement planning

E-Mail to Business Week Online

Copyright 2000-2009, Bloomberg L.P.
Terms of Use   Privacy Notice