Administration November 9, 2004

Wilshire: Mutual Fund Trading Was Within Regulatory Parameters

September 23, 2003 (PLANSPONSOR.com) - Wilshire Associates Inc has come out with both guns blazing in defense of allegations in a recently published MONEY magazine story contending the firm netted big returns at the expense of long-term mutual fund shareholders through a "rapid-fire" trading strategy.

Reported by

Eric Hazard

“All trading fell within the parameters set out by regulators and mutual funds,” was the position Wilshire took to the allegations cast by the magazine reported in a news release. Additionally, the statement went on to say, “Wilshire Associates fully disclosed the index arbitrage investing strategy to our clients.”

This comes in response to “The Great Fund Rip-Off” in MONEY magazine’s October issue, in which the magazine said the rapid-fire trades were arranged in advance and sometimes amounted to trades over $100 million worth of mutual funds in a day. This was despite the fact that most fund prospectuses explicitly stated that they discouraged this sort of churning (See MONEY: Wilshire Conducted Rapid-Fire Mutual Fund Trading Strategy ).

Begun by Wilshire roughly a decade ago, the report said the quick turnover of mutual funds was part of a hedging strategy, in which Wilshire would short sell index futures that were slightly overvalued and simultaneously buy a basket of at least 10 mutual funds. When the value of the index futures dropped, Wilshire would cover its position.

In addition, the investment consultant defended its position on its business at the time of the hedging – which the news release holds was ceased in 2002 – of helping large institutional clients select investment managers. This was after the MONEY report raised the question about possible conflicts of interest for fund companies that knew that Wilshire might (or might not) recommend them when its clients searched for money managers to make special allowances for Wilshire by permitting the rapid trading.

“At no time did those making manager selection recommendations have knowledge of the funds selected by our asset management division and visa versa,” Wilshire said.