It’s Splitsville for Monument Internet
The $47-million Monument Internet fund said Wednesday that it will steal a page from the companies it invests in by splitting its shares 3 for 1 at the end of this month.
In recent years, scores of technology and Internet companies have split their stocks to attract smaller investors with more affordable share prices.
But why split a fund share price? After all, “People don’t buy funds in round lots of shares” as they do individual stocks, said Ed Rosenbaum, research director for fund-tracker Lipper Inc. “They buy in dollar amounts. They say, ‘I want to invest $10,000 in a fund,’ not ‘Give me X number of shares.’ ”
And open-end mutual funds like Monument Internet issue unlimited shares, often in tiny units. In fact, fund investors who reinvest dividend income routinely receive fractions of shares at a time.
What’s more, Monument’s shares “aren’t that expensive to begin with,” noted Reuben Gregg Brewer, manager of fund research for the Value Line Mutual Fund Survey. At $27.73, Monument Internet is decidedly cheaper on a per-share basis than its two main rivals--the $1-billion Munder NetNet and $603-million Internet funds--and on par with a third, the $33-million WWW Internet fund.
“Obviously, they’re trying to capitalize on the fact that a lot of people are used to buying Internet stocks when they split,” said Russel Kinnel, equity editor for Chicago fund tracker Morningstar Inc. “They hope the same suckers do the same with their fund.”
Though analysts say the practice makes no sense, a recent study by three professors at the A.B. Freeman School of Business at Tulane University found “strong evidence of excess inflows into splitting funds in the quarter of the split and the two subsequent quarters.”
“Why you’d want morons in your fund who are scared away by high NAV prices, though, I don’t know,” said Morningstar’s Kinnel.
For its part, Monument Funds Group said it received numerous requests for the split from shareholders and financial advisors who said they prefer investing in a fund with a lower share price.
Fund manager Alexander Cheung added that the company is about to come out with Class B shares of its Internet fund--to be priced initially at about $10--and wanted the NAV on the current Class A shares to be in line with them.
He concedes, however, that from the standpoint of an investor, “it doesn’t make any economic sense” to go with a fund just because it has a lower NAV.
In the meantime, the company already is inadvertently doing its part to lower the fund’s NAV per share. Though the shares more than doubled at the start of the year, they have fallen 18% since hitting a high of $33.88 on April 13.
