I wonder if there are disclosure problems & or communications / front running between analysts & fund managers where mutual funds are run by brokerage houses / banks? Why not have a mutual fund buy then raise a stock rating to a "strong buy", or short then downgrade to a "strong sell"? How many mutual funds have a short gold position?
Thursday February 7, 4:13 pm Eastern Time
Amid more disclosure, funds mum on stock holdings
By James Paton
NEW YORK, Feb 7 (Reuters) - Mutual fund managers are known to tout their favorite stock picks -- on television, at conferences or in financial publications.
But unlike Wall Street analysts, they are mainly left out of the raging debate over conflicts of interests in the financial world.
Analysts are accused of being cheerleaders for their firms' corporate clients, and have drawn fire for not saying they own the stocks they promote. Fund managers face similar conflicts of interest related to their stock holdings, but don't have the pressure of keeping corporate management happy.
``If a Merrill Lynch analyst is saying, 'This is the hottest stock around. Boy, if you don't get on this train, it's going to leave the station,' that's one thing,'' said Burt Greenwald, a fund industry consultant. ``But the fund manager isn't in the business of selling securities to third parties, so there's a whole different equation.''
It's the Wall Street research analysts who have drawn all the scrutiny so far. Regulators on Thursday took the biggest step yet to keep analysts honest, including requiring them to tell investors which stocks they have in their personal portfolios.
Fund managers who talk about stocks are not required to say how many shares sit in their portfolios or how many they own personally, and they make a good case for keeping it that way, despite growing appeals for more disclosure.
Revealing current holdings information, firms note, could allow others to profit at the expense of fund holders. And most fund firms, experts say, have rigorous codes of ethics in place to monitor managers' trades and keep them honest.
MANY OF THOSE WHO CAN TELL, DON'T
For some managers, it's a moot point anyway.
At many fund firms now, managers are not permitted to discuss individual stocks at all. Managers who are free to talk about specific securities, like those at Pennsylvania fund firm The Vanguard Group, typically opt not to mention any.
A reporter called Vanguard on Thursday asking to speak to a portfolio manager about WorldCom Inc. (NasdaqNM:WCOM - news), the voice and data services company. But not a single manager was biting, said Brian Mattes, a spokesman for Vanguard.
``They don't want to telegraph to the world what they're doing with the stock,'' Mattes said. ``They might love WorldCom, but they're not going to say, 'Hey, I have a $20 billion fund and I want to put 5 percent of it in WorldCom. If they said that, you've just won yourself an all-expense paid vacation somewhere because you could then trade ahead of the manager.''
Fund managers are only required to detail their holdings twice a year in reports to shareholders, though some elect to divulge the information more frequently. The industry has argued against forcing more disclosure, which could allow others to figure out a manager's trading pattern and buy or sell stocks first, driving the price up or down.
Then there's the Jeff Vinik factor. Vinik, then manager of the huge Fidelity Magellan fund, drew criticism several years ago after selling a stock he had recently praised. Managers' opinions on various stocks can change in a single day, and many would rather not risk looking like Vinik.
PROPOSALS AIMED AT RESEARCH ANALYSTS
New proposals recommended by the National Association of Securities Dealers (NASD) and the New York Stock Exchange unveiled on Thursday would force research analysts to disclose their firms' investment banking ties to companies they tout as good opportunities and say whether they own any of the stock.
Criticism has swirled around the analysts, many of whom issued wildly optimistic reports on stocks, especially tech shares, even as they tumbled toward penny-stock territory. Analysts are reluctant to make negative comments about stocks, critics argue, because they know it could threaten their firms' chances of gaining profitable investment banking deals.
But there are important distinctions between the issues facing Wall Street researchers, or sell-side analysts, and portfolio managers.
``The sell-side analysts have much bigger conflicts of interest,'' said Russ Kinnel, director of research at Chicago-based Morningstar Inc. ``I think you would do investors a big disservice if you were to apply the same standards to fund managers. You would have a chilling effect.''
Investors, Kinnel noted, have a lot to gain by learning why managers bought particular stocks and how the stocks fit into a portfolio's investment strategy.
Although fund managers do not deal with the same conflicts-of-interests issues facing sell-side research analysts, critics can make a case for trying to trying to keep fund managers in line.
Last year, for instance, fund firm the Dreyfus Corp. settled allegations that a fund manager, Michael Schonberg, personally bought stocks that he subsequently purchased for two funds with the hope of triggering a rise in the share prices.
Fund managers usually reveal their personal holdings to their firms, but not to their shareholders. And that should be enough, Vanguard's Mattes said.
``You have extremely full disclosure of all trades right now,'' he said.
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