| YOUR FUNDS Wish list: information and more information
By Charles A. Jaffe, Globe Staff, 12/2/2001 Given the general performance of your offerings, you're probably
in no mood to give presents this holiday season. That's good, because I don't
want them. All I want this year is what's rightfully mine, information
about funds I own and that you run on my behalf. Maybe the spirit of the
season will get you to move on my holiday wish list. If that doesn't work,
I'm hoping savvy investors call or send letters like this one (or copies
of this column), so that you can't use ''No one has asked'' as a reason not
to give shareholders information they deserve. Two of five wishes I made in 1999 have been granted: A fund's
tax-efficiency must now be disclosed (thank you, Securities and Exchange
Commission) and personalized performance reporting (where funds show how
individuals do based on withdrawals and deposits, rather than showing only
the fund's numbers) has become a more standard industry practice. All I want for Christmas is ... disclosure. Specifically, I
want data that can and should be provided me today. Give me: 1) Manager compensation. This is not about how much money managers make. I'm curious
about that, but it's not useful data for shareholders. What I want to know
via Web site or prospectus is how you compensate managers, the targets they
must hit to max out their pay. Are pay incentives based on asset growth, pretax or after-tax
returns, one-year performance, or something longer term? Do they get bonuses
based on star ratings? Is compensation tied to beating a specific index or
to outperforming average peers? If they contribute their best ideas to other
funds, can they get a bonus based on the performance of those funds (which
may lead to overlapping holdings between siblings)? With this information, I could pick funds where the manager's
interests are aligned with my own. As a long-term investor, for example,
I might not want a fund at which the manager gets rich shooting for one-year
returns. 2) An honest assessment of how your funds work together.
Too many investors have been sold three or more funds from
one family to gain a false sense of diversification. All too often, the sister
funds move in synch. There is no reason why fund materials can't compare sister
funds, saying that someone who owns the international fund probably doesn't
want the firm's global fund (and vice versa). Do the overlap and correlation analysis for your customers,
and issue a warning when funds tend to have portfolios that are, say, one-third
identical. The disclosure could go something like this: ''This fund is significantly
similar to the following funds offered by the firm. ... By purchasing this
fund, shareholders in the funds listed above may not get the full diversification
benefits normally associated with investing in multiple funds.'' It's not perfect, but it would pass muster with the lawyers.
And it's something investors could look out for to warn them of potential
overlap problems. 3) Regular listings of the entire portfolio. This is a drum I will not stop beating. Too much disclosure
- like talking about changes as they happen - can hurt a large fund (and
indeed tempt investors to foolishly try to imitate a fund rather than buy
it). However, 30-day or six-week-old snapshots erase those problems and let
researchers better categorize and track funds, improve overlap measures,
and more. Outdated information every six months - the current industry
standard - is silly. We deserve a better picture of what you are doing with
our money. 4) A fund's tax policies. This is a step beyond the mandated showing of a fund's tax
efficiency, because that number may not predict the future. So disclose your tax policy on a Web site or in a prospectus.
Say that a fund pays no attention to taxes, or list the steps taken to minimize
gains. And while you are at it, say which funds' policies may make
them inappropriate for taxable accounts. This would help investors decide
which issues are better suited for a Roth IRA than a taxable college-savings
account. 5) A record of how the fund votes on proxy issues. Every so often, proxy issues get sticky and newsworthy. When
a fund votes on those issues, it represents me. Hence, I deserve to know
how my fund voted my shares. Put proxy votes on a Web site - the way a few social investment
funds do today - for interested owners to see. It will help some investors
decide whether your actions are in line with their conscience. In short, I'm not asking for much this holiday season, just
that you treat me as an owner, rather than an annoyance. The sad thing is,
shareholders everywhere would consider it a gift if they simply got the data
they deserve. Yours in the spirit of the season, Chuck Charles A. Jaffe can be reached by e-mail at
jaffe@globe.com
or at The Boston Globe, P.O. Box 2378, Boston, MA 02107-2378.
This story ran on page F4 of the Boston Globe
on 12/2/2001.
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