S&P Urges Investor Caution in Judging Fund Scandal

October 27, 2003 (PLANSPONSOR.com) - Standard & Poor's doesn't want to jump to any unsupported conclusions about the ongoing Canary Capital Partners mutual fund trading scandal.

Even though Morningstar has issued a series of blistering reviews of the actions of some mutual fund companies caught up in the probe – and recommended investors considered dumping shares in those funds (See    Morningstar Cautions Investors in Wake of Canary Scanda l) – S&P said in a statement that it needs additional data.

“Standard & Poor’s believes that more information needs to be made available before coming to conclusions on any specific family or fund,” S&P said in the statement. “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.   An investor who moves too fast could suffer financially. “Sweeping generalizations 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,” S&P said.

S&P said fund managers should lead the trading reform charge.  “Only by demonstrating rapid and decisive leadership will fund sponsors restore the public’s confidence in their products and services.”  The company pointed out, for example, that Bank One, sponsor of the One Group of funds, has issued two news releases outlining specific steps being taken to remedy the situation.

What should investors due in coming months? S&P offered this guidance: “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,” S&P said. “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.”

Federal and state officials are investigating allegations in connection with a number of investment companies of late trading and market timing (See  Spitzer Fund Abuse Probe Pumps Out More Subpoenas ).