SEC may come to mutual fund investors' rescue
Today's Wall Street Journal reports that the Securities and Exchange Commission voted unanimously to consider changes to help investors compare choices in the nearly $12 trillion mutual-fund industry through use of summary information. Here's a link to the actual press release from the SEC itself.
Though not a binding vote (passage of the changes would require a second SEC vote), the proposed changes sound like a relatively good thing for investors. Investors looking at mutual fund investments would have more "plain-English" sales and disclosure literature to access. In addition to a full-blown prospectus that each mutual fund publishes, a greater use would be made of summary information through a variety of channels, including greater use of the Internet.
As an investment professional, I sometimes find it overwhelming trying to research funds for my clients. AOL Money and sites like it do a good job of providing information, but I find myself more and more having to go to the fund company's website to get better information. Most fund websites are chock full of info, but don't provide a good mechanism to compare similar funds across mutual fund families. Clearly, investors lose out when information is readily made available.
I applaud the SEC but I think more needs to be done in terms of being able to compare and understand similar investments. With the sweeping acceptance of ETFs as mutual fund alternatives in some cases, the need for more visibility is even more acute.
Do most investors really understand that two seemingly similar Chinese market ETFs, the PowerShares Golden Dragon (AMEX: PGJ) and the iShares FTSE/Xinhua China 25 Index (AMEX: FXI) have VERY different investment mandates which is reflected in wildly different returns for the two ETFs (the FXI has outperformed the PGJ by almost 100% since late 2004)?
The FXI is not necessarily better than the PGJ -- it's just a different way to invest in China. That's the point. Investors would benefit not only from better disclosure, but also from better tools. The SEC is working on the regulatory part. But, I'm curious to see what private industry brings to the table over the next couple of years.
It's going to be interesting.
Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Author and some of his clients hold FXI as of 11/16/2007.