Jeffrey Sheff: ‘How come we have to wait 6 months to a year to find out (in a prospectus which takes 6 weeks to arrive by snail mail) what stocks my fund held a few corrections ago? A fund which may have replaced 100+ per cent of its portfolio in the meantime, and thus, by not letting the cat out of the bag, has left you buying a pig in a poke? My intelligence, such as it is, is offended when I receive a quarterly report months after the period has ended. My suspicious mind wonders if the plausible rationalizations of the fund managers for its performance may not have had the benefit of more hindsight than it appears from the report date. Could you clarify this situation for me? Or, better yet, agree with my annoyance at this state of affairs?’

Cats, bags, pigs, pokes . . . hmmm. I certainly appreciate your frustration. I see pros and cons to more contemporaneous reporting.

The pros are, simply: why not? Disclosure is almost always good. It’s your fund – why shouldn’t you be allowed to know what’s in it? Indeed, just as you call your own portfolio up to the screen each day, why not be able, through the Internet, to call up your fund’s portfolio?

Yes, this would be a waste of your time. But surely not the only way you waste time. (Coming to this column each morning might itself be considered . . . well . . .mumble mumble.)

Yet there’s another side to this story, as thought through by my esteemed friend Less Antman.

First of all, says Less, to keep from driving the price up or down, a fund manager will often take weeks or months to build up or liquidate a position in a stock. Releasing information promptly would tip his hand – Magellan has started selling Yahoo! … Run for the hills! – and that could hurt the price he’s able to get his shareholders.

Second, mutual funds should be considered long-term investments. There is no pig-in-the-poke when the investments of the fund are published semi-annually and performance is released daily. It’s probably a mistake to invest based on what a fund owns rather than on its policies and performance. In choosing funds, you’re choosing managers, not stocks.

(It seems Jeffrey’s metaphors were not mixed. Buying a pig in a poke, I now find, refers to the old English custom of scamming the gullible by putting a cat, not a piglet, inside a poke — a little version of which sewn to your pants would be a pocket — and hoping the buyer would not insist on a look-see and let the cat out of the bag.)

Note, too, that the delay in publishing reports hangs party on the legally required audit. Most of the large firms, including Vanguard and American Century, are making their reports available online the instant they are approved by their accountants. The managers don’t write the explanations of results 6 weeks after the report date, Less says; they write them almost immediately. It is the delay for accounting and legal reasons that are to blame.

So, Jeffrey, do I share your annoyance? Well, not entirely. I’m more annoyed by high expense ratios or poor performance. But you definitely have a point.


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