What You See Is What You Get

The mutual fund is the most successful investment vehicle the world has ever seen. Mutual funds are not sold on an open market, like individual shares of stocks, but by fund companies themselves – either directly to shareholders or through intermediaries like investment advisers. Prices are set, not every millisecond as shares trade, but every afternoon at 4 p.m., when the stock markets close in the United States – a fact that offers chances for chicanery, as we’ve seen in recent scandals that have led, so far, to nearly $2 billion in fines and the resignation of the chief executives of three funds.

While choices are broad, mutual fund expenses can be hefty – even though most fund managers don’t beat the market as a whole. And funds trade so much that they can incur significant capital gains, making their shareholders liable each year for the taxes.

Plus, when you buy a mutual fund, you don’t know precisely what you’ve puchased. Funds are required to list their holdings only four times a year, and, since turnover for an equity fund averages about 100 percent annually, about one-twelth of the stock are different each month. Some stock-fund managers try to time the market by loading up on bonds and cash; others say they run value funds but scoop up hot growth stocks when the spirit moves them; some small-cap funds have half their assets in mid-caps. You don’t always get what you want.

James K.Glassman

The International Herals Tribune

Notes

1. mutual fund –взаимный фонд : паевой инвестиционный фонд открытого типа, дающий инвесторам доступ к более высоким рыночным процентным ставкам, возможность диверсифицировать риск и экономить на брокерских комиссионных; привлекает средства путем продажи своих акций, а затем вкладывает их в акции и инструменты денежного рынка
2. “What you see is what you get” – the phrase one can often see on products on sale or in promotion. It means the producer (or retailer) guarantees the proper quality of the goods, as if saying:”You can see for yourself that you’re buying a quality product - no cheating.” The title has an ironic sense, and the sentence “…when you buy a mutual fund, you don’t know precisely what you’ve purchased” is pointing at it
3. millisecond – доля секунды
4. chicanery - a trick; deception by trickery

Vocabulary

investment vehicle –средство инвестирования; investment adviser – консультант по инвестициям

to beat the market - заработать огромную прибыль на рыночных (спекулятивных) сделках (“обмануть рынок”)

to incur capital gains – вызвать прирост капитала, т.е. прибыль от продажи активов, которая обычно облагается специальным налогом (capital gains tax)

to be (make) liable for taxes – облагаемые налогами

to list the holdings – опубликовать содержание инвестиционного портфеля

equity fund – фонд, вкладывающий средства в акции

to time the market – выждать время до более благоприятной ситуации на рынке

value funds – фонды, которые инвестируют средства в value stocks,т.е. вакциидавно существующих компаний, пользующихся доверием, которые платят дивиденды

hot growth stock – акции быстро растущих компаний, которые реинвестируют средства скорее в НИОКР, а не расходуют их на дивиденды

index funds – фонды, которые ориентируются в своих операциях на фондовые индексы

actively managed funds – фонды, которыми управляют профессионалы

small-cap(italization) fund – фонд, который вкладывает средства в акции компаний с небольшой рыночной капитализацией (менее $5 млрд); mid-cap fund –фонд,вкладывающий средства в акции компаний со средним размером рыночной капитализации ( $5-10 млрд); large-cap fund – фонд, инвестирующий средства в акции компаний с высоким уровнем рыночной капитализации (более $10 млрд)

Little Light on Funds’ ‘Window-Dressing’

By Sandra Sugawara

Americans have $6.5 trillion of their savings in mutual funds, but finding out how that money has been put to work for them is not easy. Mutual funds are required to disclose their portfolios only twice a year. The rest of the time, investors have no way to know what their fund managers are up to.They can scrutinize these semiannual holdings, but they might wonder: Did the fund managers own those hot stocks for months, or did they buy them at year-end to make themselves look smart?

Industry executives say they cannot disclose their investment decisions more often because that would affect their trading costs if other Wall Street players knew their intentions. But the curtain that shields the operations of mutual funds encourages speculation that some fund managers engage in ”window-dressing” and other tricks to attract more cash and maximize their compensation. Regulators and some former mutual fund officials acknowledge that window-dressing occurs, but they also say it is difficult to stop.

“Window-dressing is pretty common because it impacts how the managers of active funds are compensated,” said Robert Steele, a vice-president of the Rydex Series Trust mutual funds. “It’s not new and probably won’t go away.” He said that because Rydex’s funds were index-based, designed to mimic the movements of certain indexes, his managers had no incentive to engage in window-dressing.

A new study also suggests that some funds help raise their own performance figures at the end of the year through last minute investments, by “marking up their portfolios.” “They bump up their valuations on Dec.31 by purchasing shares of stock they already own,” he said.

Mr.Musto said the five year study, which he conducted with three other finance specialists, had found that the top-performing funds generally posted their best gains on the last day of the year and had their worst results on the first trading day of the following year. Furthermore, it found, the hottest stocks held by these funds reached their peak in the last hour of trading of the year and dropped back down within the first thirty minutes of the next trading day. The same pattern did not exist for poorly performing funds, Mr.Musto said, probably because there was little financial reward for low-ranked funds that move up just a few places in the performance rankings.

Big mutual funds buy and sell billion of dollars of shares, and some equity traders say the big price moves by technology stocks were caused in part by window-dressing and the “marking up” of portfolios. Mutual fund officials deny that they try to push up stock prices to improve performance or engage in window-dressing. Privately, a few fund managers said they suspected or had heard that some of their competitors engaged in such practices but said they were not wide-spread.

Brian Mattes, a spokesman for Vanguard Group, said he did not believe such practices posed problems in the industry, because frequent trading can raise funds’ costs and create tax problems for investors. “It’s a costly, complicated maneuver,” Mr.Mattes said, “really a poinless exercise.” But Donald Luskin, president of MetaMarkets.com, a World Wide Web site for active on-line investors and former chief executive of Barclays Global Mutual Funds, said the point of window-dressing was that many fund managers wanted to dump losers and buy winners to make themselves look like sharp stock-pickers.

In addition, last year there was an interesting “cross-current,” Mr.Luskin said. ”Many funds achieved better-than-usual performance by betting on technology stocks and Internet stocks,” he said, “and that may not be something they want widows-and-orphans investors to realize.”

Barry Barbash, a Washington lawyer and formerly the Securities and Exchange Commission’s top regulator of mutual funds, said the SEC investigated reports of window-dressing at the end of each year. But he said it was difficult to prove that any trade had been made for fraudulent purposes.

Securities lawyers said that during the bull market there had been few investor demands for more transparency because so many funds performed so well. But if the markets were to crash and investors were to lose money because their mutual funds did not contain the types of stocks they expected, lawsuits would probably follow, they said.

The Washington Post

Note

there was an interesting “cross-current” –возникло интересное настроение (среди управляющих фондами), прямо противоположное предыдущему

Vocabulary

window-dressing (syn.creative accounting) –приукрашивание финансового отчета компании; to engage in window-dressing – заниматься приукрашиванием финансовой отчетности

to put money to work for smb – пустить деньги в дело, найти им применение; инвестировать средства

to disclose the portfolio – раскрыть содержание портфеля

hot stock (syn.hot issue) –акции,пользующиеся большим спросом и имеющие высокую цену, а также те, которые, как ожидается, будут расти в цене technology stock –акции компаний высоких технологий

to mark up the portfolio –увеличить стоимость содержания портфеля

loser –акция, падающая в цене; winner –акция, растущая в цене

widows-and-orphans investors – небогатые инвесторы, которые вкладывают свои средства в акции с минимальным риском

market maneuvers –рыночные махинации

to create tax problems –вызвать проблемы с налоговыми органами

on-line investor – интернет-инвестор; active investor – инвестор с большим объемом операций

for fraudulent purposes – с преступными целями