To All, more bad news on the mutual fund front. Now, if you have a fund that says it is a certain type of fund, at least 80% of assets must be in that category. Yes, it is a boon for investors and brokers who do not read financial statements. But it is another stake in the heart of performance. Let me recall an extreme but true situation. In the 1970s, the very bright manager of a High Yield Fund noted that Ginnie Maes were yielding as much as junk. So, he asked the question:
"For the same yield, would I rather own a BB piece of crap likely to go belly up, or would I rather own US govt. guaranteed paper?" Easy choice, he bought the Ginnies. And he nearly lost his job, as the Directors claimed he was violating the intent of the fund. We argued that "high yield" is high yield and you want to buy the best quality you can to achieve that yield. We lost, but at least we were able to make the argument.
This new rule means we can't even make the argument.
If you are successful running a small cap growth fund, you either have to change your name or sell your stocks if they grow to mid cap. Then, if you change your name and you finally sell your winners and go back to small caps, change it again. More fees for the SEC and for lawyers.
More and more, the concept of buying what is cheap and selling what is expensive is being squeezed out of the investment arena.
Sorry for the rant, but this sticks in my craw. |
