After an investigation into mutual fund disclosures and fees, New York Attorney General Eric T. Schneiderman has reached an agreement with 13 major fund firms to voluntarily disclose the extent of their closet indexing, revealing how actively managed their equity funds actually are.
Known as active share, the figures in the new disclosures measure the percentage of stock holdings in a fund's portfolio that differs from that fund's benchmark index. This is "key information investors can use to determine whether a higher-fee, actively managed fund has the potential to beat the benchmark returns of a lower-cost, passively managed fund," Mr. Schneiderman's office said in a release.
The attorney general's investigation found that while the 13 fund firms regularly disclosed such information to institutional and professional investors, retail investors were often excluded. The investigation's findings are contained in a report,
"Mutual Fund Fees and Active Share."
The firms that have agreed to publish active share information are: AllianceBernstein, BlackRock, Dreyfus, The
Capital Group (American Funds), Columbia Management, Eaton Vance, Goldman Sachs,
JP Morgan Chase, OppenheimerFunds, Nuveen, T. Rowe Price, USAA and Vanguard. Each of the firms will post on their websites the active share of the relevant funds on a quarterly basis. Most of the firms will do so beginning this spring, the release said.
(More: Vanguard crushed active investing. Now it could save it)
"Retail investors often rely on the advice of brokers or financial advisers, and there is significant uncertainty regarding the standard of care those advisers owe to retirement investors under federal law," the release said. "Accordingly, Americans saving for retirement must be especially vigilant in evaluating investment choices and the investment recommendations made by their advisers.
