S&P Statement on Market Timing and Late Trading
Standard & Poor's, the provider of independent investment research, ratings, and indices, took the unprecedented step this week of releasing the following statement on the issues of market timing and late trading of mutual funds:
"When the current issue of market timing and late trading of mutual funds broke, mutual fund analysts from Standard & Poor's cautioned investors to wait for further information before taking any action. Even given the fact that the situation has obviously evolved, much still remains to be learned about the breadth and depth of this investigation - we may for example learn more about any role played by intermediaries and distribution channels - and we remain committed to our initial position.
Clearly, advantaging one set of investors over another is wrong and should not be excused. Changes in the industry are already being widely discussed. While trade associations and regulators will encourage these changes, Standard & Poor's strongly believes management of the fund sponsors must lead these changes.
Only by demonstrating rapid and decisive leadership will fund sponsors restore the public's confidence in their products and services. Some early signs are encouraging. The president of Bank One, sponsor of the One Group of funds, has issued two releases outlining specific steps being taken to remedy the situation. More importantly, he appears to be supporting these releases with actions. At the same time, the recent news associated with a member of the Alger group of funds is disappointing.
Standard & Poor's believes that more information needs to be made available before coming to conclusions on any specific family or fund. We will be looking to the actions taken by the fund sponsor, the specific funds affected by these actions and the sources or causes of the activities. Until these facts are known, it is difficult to draw specific conclusions.
Standard & Poor's believes that each fund should be judged on its own merits and circumstances. For example, many fund sponsors hire other independent money managers who do not have direct relationships with the sponsor's portfolio managers and analysts and may not be affected by any issues relating to the sponsor.
In addition, in-house management teams at some fund firms may also operate largely independently from one another, so that an issue with a family's growth funds may not affect its value funds, or vice-versa. As a result, it would be difficult to paint both sides of such an operation with the same brush.
Sweeping generalisations and impulsive decisions about fund sponsors may result in an unbalanced portfolio and inadequate asset allocation decisions for investors, or may lead an investor to move from one fund family to another based on incomplete information, only to find that he or she has moved from a fund that was not affected to one that was.
Investors should always closely consider several important factors when evaluating the merits of a fund. The quality of the sponsor is an important factor but other factors, including the experience of the portfolio manager, the adherence to a stated style, the consistency of a performance track record and the fund's expenses must also be accounted for.
Investors must be afforded sufficient transparency on each of these issues in order to gain the confidence necessary to invest. Investing based on a single point of information can lead to ill-advised judgments. Rather, the sum of these factors must be taken into account in order to reach an informed conclusion.
Standard & Poor's will continue to closely follow the actions taken by fund sponsor's management and factor this into its decision-making."
copyright hedgeweek 2003
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