Security - Check Permissions

MFDF - Mutual Fund Directors Forum - Jaffe’s Fund Wish List

Member Login

Request an account

Sample Banner 1

Jaffe’s Fund Wish List

Columnist Chuck Jaffe issued his holiday wish list for the fund world. According to Jaffe, “[t]he mutual fund business believes that the only thing it owes you for your money is a positive return,” but he argues that “if — in the spirit of the season — fund executives wanted to make investors’ lives easier, there are a few moves they could make.”

Jaffe first asks for clarity in the objectives of “alternative funds” and “smart beta” because he finds the “same boilerplate used in mainstream funds; there’s nothing alternative to ‘the fund seeks a long–term positive absolute return,’ or smart about ‘the fund seeks to replicate the return of the index.’” He argues that, without a standard definition for these terms, “fund companies should describe what these products deliver in exchange for the risk they take.”

Jaffe also complains that information regarding a portfolio manager’s investment in the fund is placed in the Statement of Additional Information instead of added to the end of the manager’s biography in Part 1 of the prospectus. He suggests that investors do not consume much of Part 1 of the prospectus and “never see Part 2.” Similarly, Jaffe asks that funds summarize changes made to the prospectus and bold changes in the text so that investors can easily understand differences in the document year-over-year.

He suggests that funds should add comparative fee information to the comparative performance information already found in the prospectus, in order to pressure funds to reduce expenses and aid investors. Jaffe thinks funds should also inform investors “when fund sisters consistently have 20% or more overlap” so that investors do no inadvertently concentrate their portfolios when trying to diversify.

Lastly, Jaffe argues that “[t]here are a lot of bad funds” and that “it’s never in shareholders’ best interests to tolerate permanent mediocrity.” He suggests that funds with poor performance can serve as “an annuity for management” and can “survive for decades.” As a result, management should “kill” the fund because “shareholders deserve a fund company’s best ideas, not to be stuck with its dullards.”