Investors Aware of Fund Scandal

March 1, 2004 ( - Awareness of the growing mutual fund market-timing and late-trading scandal is prevalent among stock mutual fund investors and non investors alike.

More than eight out of 10 (82%) of investors who held equity mutual funds said they were aware of the scandal, compared to a relatively high percentage (77%) of non-equity fund investors who were aware.   About half of the respondents who said they were aware of the scandals are paying attention to (48%) and are concerned about their impact (50%), according to the most recent reading of Voice of the American Shareholder quarterly poll conducted by the National Association of Investors Corporation (NAIC).

Stock fund holders also feel strongly about what action should be taken against the wrongdoers.   Eighty-seven percent said convicting fund managers of criminal charges would be the most effective reform, followed by 82% that felt a requirement that funds provide full disclosure of all fees by listing them in dollar amounts on customer statements.  The other top three reforms, for mutual fund holders as well as shareholders in general, were:

  • to bring civil charges against mutual fund firms (75% of all shareholders)
  • create an independent fund oversight board similar to that now in place in the accounting industry (73% of all shareholders)
  • require that fund managers’ compensation be tied to fund performance (68% of all shareholders).

Most are also onboard with the situation to be handled within the mutual fund industry without government interference.   More than half of all respondents (56%) an independent board is best equipped to deal with its shortcomings compared to only about one in five respondents preferring government intervention.

Overall, s hareholders are more optimistic about the direction of the economy and the stock market than they were in September, with 44% expecting an increase in the market in the next three months compared with 32% who were confident of a rising market in the first poll. Six out of 10 respondents in the January poll said now is a good time for new investors to get into the market. Among poll participants, 43% said stocks are a better bargain today than one year ago and 34% said now is the time to move money into safer, lower risk investments from higher return/higher risk investments.

E ven though investment individual stocks was up 75% since September to a mean of $109,000 in January, equity mutual funds did not fare so well, falling back to a mean portfolio value of $84,000 from $95,000 over the same time frame.   Yet, some investors are sticking with their choices because they view mutual funds as long-term investments, and they are still getting good returns. Among the 11% of stock mutual fund holders who did sell funds because of the scandals, the two most popular places to put the proceeds were cash and other fund families.

The poll was conducted online by Harris Interactive between January 7 and 19, 2004 among 1,169US adults who own individual stocks or stock mutual funds.   Poll participants represented a national audience of shareholders with about half living in or near metro areas with a population of one million or more. Their median age was 49, and they split 60/40 among males and females.