Mutual Fund Investors Plan to Pull Money From Bad Firms

December 5, 2003 ( - More than three-quarters (77%) of mutual fund investors said they would pull money out of a fund they believe acted improperly.

Despite the intense media microscope being placed on the mutual fund industry due to reports of trading improprieties at several mutual fund firms, three out of four investors say that performance is the top criteria for selecting a mutual fund, compared to 57% citing reputation as key to fund selection.   Further, 85% of respondents said they will “keep money in their current fund,” according to a survey conducted by The Lumin Collaborative LLC.

Some of the 650 mutual fund investors polled though are not as willing to part with their hard earned investments.   While only 5% of respondents said they were likely to pull all their funds out of the market, 30% plan to keep money in the market but will stop investing in mutual funds as a result of the emerging mutual fund scandal.

In addition to speaking with their investment dollars, mutual fund investors are calling for prosecution of trade law violators (89%) and tighter regulatory oversight (76%).   Asked how long this storm of controversy will prevail, 51% think it will continue of the next six months and 41% predict it will get worse before it gets better.

The Good, The Bad and The Ugly

Most likely to see an outflow of investor dollars are those funds the survey’s respondents most readily identified as being involved in the alleged misdealings:   Putnam, fingered by nearly half (48%) of the survey’s sample, and Strong, picked out by 23%.   Not surprising then, correlating survey results showed that these companies garnered the most negative evaluation from participants, with nearly half of respondents citing negative impressions of Putnam and Strong – 47% and 44%, respectively. Of those, 17% claimed that Putnam was “one of the worst” mutual fund companies.

On the other end of the spectrum, mutual fund investors Fidelity and Vanguard, free from negative press to date, were evaluated positively – 94% and 90%, respectively – with half calling each fund “one of the best” in the industry. Fidelity was identified by only 16% of respondents when asked which mutual funds were involved in negative news reports, while Vanguard was not named at all.

The online survey was completed by 650 mutual fund investors nationwide in late November. Most respondents (72%) were between the ages of 35 and 65; college graduates (68%) and earned more than $50,000 per year (66%).