Good time to complain to fund brass

Your Funds

Dollars & Sense

August 11, 2002|By CHARLES JAFFE

GET MAD, and contact your funds. Mutual fund investors have a lot to complain about lately.

It's not just about performance, but about service and information from fund companies. If your fund companies aren't providing details you want, the time is ripe to speak up.

Proof of that came a few weeks ago when Putnam Investments quietly reversed a March decision to remove the names of its individual stock pickers from fund prospectus materials.

Putnam's response to the shareholder and client outrage generated by its original decision should be applauded. Manager names have been restored to the company's Web site and will be restored in all fund documents filed after May 31 this year.

The victory for shareholders was much greater than names in a prospectus. Investors have proof that fund companies will bend to the will of the owners if pestered enough.

For years, fund executives have avoided certain disclosures because "shareholders haven't asked."

Let's ask now, as funds fear losing frustrated investors and corporate transparency is foremost in investors' minds.

Fund companies will give in to investors if they hear common concerns over and over again. A few isolated investors - or even newspaper columnists - won't get the job done, but many individuals representing a lot of money will.

So, whether you are a large or small investor, get your dander up and complain. Here are a few things to ask for:

Manager disclosures. Putnam wasn't the only company hiding this most basic information. What's more, some fund companies (most notably Van Kampen) have positioned themselves so that they can avoid notifying investors when managers change. That's just wrong.

Beyond the basic premise of knowing your manager's name is the bigger issue that shareholders have no clue how their manager is compensated.

The size of the manager's paycheck is much less important than what incentives the company uses to allow him or her to maximize bonuses.

Are incentives based on asset growth, pretax or after-tax earnings, short- or long-term performance? Is there a bonus for something like a top star rating?

This is information - currently not available anywhere, even in a fund's statement of additional information - that would help investors know if a fund is being run in line with their interest.

If you don't think it's important stuff, consider Putnam. Insiders there note that after its top-flight 1990s performance turned sour in 2000 and last year, the company changed the way it calculated bonuses, de-emphasizing a short-term focus that led to increased volatility and stressing a longer view that values consistency.

When you know what a manager must do to maximize his or her paycheck, you have a window into how a fund will behave.

Increased portfolio disclosures. Many funds give regular lists of their top 10 holdings, in addition to their required six-month write-up of the entire portfolio.

Investors deserve more, such as knowing who owned Enron or WorldCom stock at the wrong time.

Funds have competitive reasons for limiting disclosure, but they should still give regular updates, perhaps listing holdings at the start of every month, with a 60-day lag (so that the Aug. 1 disclosure would show the June 1 portfolio).

The top 10 holdings aren't enough because, for many funds, that's not where the action is.

Proxy votes. When funds vote on corporate issues, they represent you. As a result, you should know from their Web sites how they represented your opinion, whether it concerns the appointment of a corporate auditor or a social or environmental issue about which you feel strongly.

Personalized performance. Some companies say how the individual investor has done in a fund, rather than how the fund has performed over time. The difference can be significant, with the timing of deposits or withdrawals affecting the return on your money.

Companies can easily add this to regular statements. When you complain and ask for it, also request the average cost you have paid for your shares, information that is crucial when you sell and must calculate capital gains.

Every fund company should be disclosing such details about personal accounts by now.

When you call for this kind of information, the fund representatives might think you've gone mad. They might tell you these details aren't available or aren't your business.

Remind them that you own the fund. Complain to the top brass. Write letters. Individually, you might not get the details you want; collectively, if shareholders can persuade a few companies to make these welcome disclosures, we could start an important trend in the industry.

Chuck Jaffe is mutual funds columnist at The Boston Globe. He can be reached by e-mail at jaffe@globe.com or at The Boston Globe, Box 2378, Boston, Mass. 02107-2378.

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