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Portfolio > Mutual Funds

Investors Appear To Shrug Off Fund Probe

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Sept. 16, 2003 — Sales of stock mutual funds have not been hurt by the probe of fund trading practices by New York Attorney General Eliot Spitzer, fund companies say.

The allegations of abuses, however, could encourage more investors to buy funds through brokers or financial planners rather than directly from fund complexes, industry observers say.

Fidelity Investments, the largest U.S. fund company, saw “strong” sales of its stock funds through August, and that trend has continued this month, a company spokesman said yesterday.

Baltimore-based T.Rowe Price Group (TROW) also described its sales through this month as robust. “There’s been no material effect” on fund inflows, said spokeswoman Robin Brenza.

Ivy McLemore, a spokesman for the AIM and Invesco fund arms of AMVESCAP PLCADS (AVZ), said neither unit has experienced anything “out of the ordinary.”

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.


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