Mutual fund holdings are vital information to fund investors when evaluating a manager’s performance as reported. Without knowing what a fund’s holdings are, investors can neither fully appreciate why a manager has performed well, nor can they thoroughly come to grasp about any poor results. Even if a fund is doing ok, investors may decide that the fund investments are overlapping with their other portfolios or not in line with their own investing goals and want to relocate the money elsewhere. But without access to a set of complete information on a fund’s portfolio, investors are basically kept in the dark and can’t decide for themselves on any of those personal investment decisions.
What Does the Law Require
By law, mutual funds are required to release complete portfolio holdings only twice a year. For actively managed funds, in the interim of 6 months, their holdings could have been turned over many times and the information at investors’ hands can never be real time, live feeds, considering today’s online technology has made instant exchange of information nothing but possible. In fact, the decades-old securities law enacted such a rule because of the concern that fund companies couldn’t afford to mail out a report every day.
Objection to Frequent Portfolio Disclosure
Chief concern among mutual fund companies is that timely portfolio updates of fund holdings can tip off their intentions to the market. It may cause potential front run on a fund where other traders can buy shares ahead of the fund and drive up prices, while the fund is still taking the time to build up positions in a stock. But supporters of full, on-time publication of portfolio holdings argue that the hidden reason why funds are reluctant to do anything beyond what the law requires is that managers might be concerned about revealing questionable trading practice in any disclosure. Funds do a lot of window-dressing trading close to quarter end to boost performance and increase management compensation.
Other Concerns by Financial Advisers
Some financial advisory don’t think that requiring more disclosures of a fund’s holdings is a good idea. They contend that overwhelming information can lead investors to losing their long-term focus and becoming obsessed with fund trading. The advantage of having accessible information as claimed by some investors may be overblown. They also observe that people who are trading stocks and looking for ideas are more interested in getting a first look at a fund’s holdings.
Amid all the conflicting viewpoints, some mutual fund companies are stepping up to make more frequent disclosures on their portfolio holdings. More quarterly updates are now available, with monthly reports on top holdings. To the delight of some investors, a fund named OpenFund lets investors view active trading on its website, while others post weekly trading commentaries by fund managers. A standard monthly reporting ought to be possible if the idea of leaving out sensible trading information is made to consensus.
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