Posted Saturday, Dec. 10, 2011
Article from Star Telegram
By CHARLES JAFFE
cjaffe@marketwatch.com
Dear Fund Industry Bigwigs:
The last few years have shown that mutual funds are always capable of taking, but seldom in the mood for giving.
We deserve better, especially around the holidays. With that in mind, and in the spirit of the season, here's my "wish list" of things that would easily make fund investing better and easier. Every time I say what I want the fund industry to do, I hear from some of you saying there's no chance. Yet each time since the mid-1990s when the industry has gotten a black eye, my far-out wishes are suddenly offered up as "mutual fund reform."
It shouldn't have to be that way. If you care for fund shareholders, you'd give us these things to make our purchase and ownership decisions easier:
The dollar amount we pay in costs. Somewhere on my statement, I should see not only my profit or loss, but also exactly how much of my money year-to-date was lost to fund expenses. A ratio is fine for showing what we lose in gross returns when we first buy a fund, but consumers look at wins and losses on our statements in real-money terms.
Comparative fee information. To really fix fee disclosures, you need to go beyond disclosing the actual dollars paid out. If funds can compare performance to an index or average -- required in the prospectus by rule -- they can compare expenses to the average fund in the peer group.
Just show your fund's expense ratio against the average for actively and passively managed funds in the same category.
The manager's track record, relative to the same benchmarks you use for the fund. As long as we're giving shareholders better comparative data, please disclose managers' career track records relative to the peer groups and benchmarks they have competed with.
Fund investors should be able to see managers' evolving career history. It would give us a better idea of their abilities and would let their records tell a career story.
We know you have these numbers, because they're how you judge managers.
A quick guide to whether managers have skin in the game. A manager's holdings in the fund are disclosed in the "statement of additional information," otherwise known as "the part of the prospectus investors aren't sent and never see."
Simply add a line beneath the manager's bio in the primary section of the prospectus saying how much -- if anything -- the manager has invested in the fund.
Knowing that the manager is riding along is a comfort to many investors. While you're at it, how about paying all fund directors with shares of the funds they run?
That way, it goes without saying that your independent directors have their interests aligned with the people they represent.
A declaration of what my fund really means to the manager. We'd like to believe the fund we own is the most important thing the manager works on. But anyone who actually reads the statement of additional information can see that many fund bosses run other funds, hedge funds, private accounts and more.
What shareholders really want to know is how much money the manager (or team) runs, and the percentage of those assets that the fund represents, as well as how much of the manager or firm's income is from our fund versus the other activities.
If a fund is a small part of the manager's responsibility and/or compensation, it probably shouldn't be a big part of our portfolios.
Charles Jaffe is a columnist for MarketWatch.
Article from Star Telegram