Investors Appear To Shrug Off Fund Probe

TrimTabs Financial Services, which monitors fund flows, estimated that domestic stock funds took in about $2.8 billion in the week ended Sept. 10, (a week after Spitzer launched the investigation) but international stock funds suffered outflows of $3.2 billion.

The defections from the foreign funds may have been triggered by the probe, said Charles Biderman, TrimTabs’ chief executive. He noted that short-term traders often use international funds to try to gain from differences in the prices of foreign securities held in U.S.-based mutual funds. It’s “most likely” there were “some shenanigans” in this fund group, he said.

Among domestic stock funds, inflows are primarily tied to fund performance, Biderman said.

Burt Greenwald, a mutual fund consultant in Philadelphia, said Spitzer’s investigation is likely to drive more people to buy funds through brokers or financial planners so they can get investment advice. Most funds are currently sold through third parties and the probe will probably accelerate this trend, he said.

Fund consultant Geoff Bobroff expressed similar sentiments. “People are inclined to develop trust and confidence on a local level, and dealing with an 800 number and a P.O. box in today’s environment is a challenge,” he said.