Investors’ Views of Fund Industry Less Favorable

Many investors have lowered their opinion of the mutual fund industry in the wake of scandals over market timing and late trading, according to survey findings from an industry group released Wednesday.

The survey said 76% of mutual fund investors were aware of the trading scandal, and among these, 56% had a lower opinion of the industry than previously. But 44% said it had no effect on their views.

The annual survey, conducted by the Investment Company Institute since 1997, said nearly three-quarters of the respondents view the industry favorably overall, with 56% saying their impression is “favorable” and 16% saying it is “very favorable.”

Findings of the latest Tracking Survey were discussed at a news briefing in New York. In previous years, survey results were not disclosed to the public.

Institute President Paul Stevens noted that net new cash going into stock and bond funds over the 12 months ended in May totaled $244 billion, the second highest since 1997. He said the rebound in flow activity was another way to gauge investor sentiment.

The 2004 Tracking Survey, conducted in June, sampled 1,110 households that owned funds and were familiar with fund companies. Results had a margin of error of plus or minus 2.9%.

Stevens said the combination of favorable and very favorable impressions was in the low 80% range from 1997 to 2000, when the stock market was in a rising trend, compared with 72% in the latest survey.

“In the past few years, it appears that the bear market has adversely affected shareholders’ views of funds, and that the recent scandals have had an additional impact,” Stevens said.

The number of investors with a “very unfavorable” view of funds has been either 1% or 2% every year the survey has been conducted, he said.

The survey found that fund performance was the most important factor in how a shareholder views the industry, followed by personal experience with the company, current market events and professional advice.

Asked about factors for owning funds, more than half the respondents cited the reputations of the fund companies with which they do business, the investment diversification offered by funds and a wide range of fund types that are available.