Rule Would Boost Mutual Fund Disclosure
Investors may soon get a clearer picture of how mutual funds are investing their money.
Fund companies would have to disclose their stock holdings more frequently under a new rule being developed by the Securities and Exchange Commission, SEC officials said Tuesday.
The draft proposal, which the SEC is due to vote on this month, is supported by investor advocates and opposed by the mutual fund industry. SEC Chairman Harvey L. Pitt recommended the change after accounting scandals at Enron Corp. and other companies, agency officials said.
“This plan would allow people to make better judgments,” SEC Investment-Management Director Paul Roye said. “If my fund owns Enron stock, for example, I might want up-to-date information about the extent of these holdings so I can consider whether to change funds.”
SEC rules now require mutual funds to disclose stock and bond holdings every six months. Roye declined to say how often funds would have to reveal investments under the SEC plan. Investor advocates such as the Consumer Federation of America have asked the SEC to require funds to disclose holdings every month.
“The industry needs more frequent disclosure,” said Geoffrey Bobroff, a lawyer and fund consultant. “That said, I’m not sure how much difference it will make, since no one knew about Enron’s problems till it blew up.”
The SEC plan comes as U.S. stock funds have been losing money and many people have switched investments from stock to bond funds. About 52% of U.S. households have money in mutual funds.
Fidelity Investments and Vanguard Group, the two largest mutual fund companies, both expressed concern about SEC efforts to require more frequent disclosure of portfolio holdings. The two companies disclose each of their funds’ full portfolios twice a year.
A spokesman for Boston-based Fidelity said traders might be able to exploit more frequent fund disclosures to figure out a fund company’s investment strategy. These traders could then “front-run” Fidelity’s trades by buying the stock that the fund is in the process of buying and selling shares that Fidelity is selling.
Investor advocates such as the Consumer Federation and the AFL-CIO first brought the issue to the SEC’s attention with rule-making petitions in 2000.
The Investment Company Institute, the fund industry trade group, urged the SEC to reject these petitions for more frequent disclosure.
The SEC’s staff plans to submit the disclosure proposal to commissioners this month. Commissioners will vote on whether to issue the proposal for public comment before deciding on final adoption.
