Increased Disclosure and Portfolio Management Transparency

Given that increased disclosure does not reduce the fund’s performance, a portfolio manager should prefer, for the sake of transparency, to invest client assets in funds with increased disclosure.

Investment portfolio management companies can help clients build specific portfolios that target their goals. They also manage the portfolios on behalf of the clients to ensure clients’ investments perform as expected and with risk that is appropriate for the clients’ tolerance. A separately managed portfolio can include mutual funds, stocks, bonds, and more. Both institutional and individual investors can seek portfolio management firms for their separately managed accounts. The firm manages and builds the portfolio and in choosing mutual funds to be held in the portfolio, may want to consider the transparency of mutual funds that provide portfolio holding disclosures

Portfolio holding disclosures allow the mutual fund unitholder to understand how their investment is being managed. Portfolio management companies that manage mutual funds offer this service. These portfolio holding disclosures benefit both individual clients and institutional clients for whom their portfolio managers are purchasing the mutual funds.

What are Portfolio Holding Disclosures?

Portfolio holding disclosures provide transparency for the investor to monitor and understand how their funds are being managed. Portfolio holding disclosures are provided by the portfolio management firms that manage the mutual funds. The portfolio manager who buys a mutual fund in the client’s account will use the information in the portfolio holding disclosures to monito how the mutual fund is being managed.

Mutual funds can include many different investments, including stocks and bonds. As the portfolio manager responsible for ensuring that a mutual fund purchased in a client’s account is appropriate for the client’s objectives the portfolio manager will consider the information in the portfolio holding disclosure to determine whether the mutual is appropriate for the client. These portfolio holding disclosures allow the portfolio manager to track how the mutual funds held in the account are being managed.

What are the benefits and disadvantages of portfolio holding disclosures?

Increased portfolio holding disclosures allow the portfolio manager who buys the fund in a client’s account to determine if the fund is adhering to the objective for which it was purchased. With increased portfolio holding disclosures, fraudulent behavior by the mutual fund managers is also more easily detected by the portfolio manager. However, by disclosing in advance the mutual fund’s intended investments, portfolio holding disclosures can create the opportunity for mutual fund competitors to replicate the mutual fund’s strategy.

These disclosures also allow investors to purchase securities that a mutual fund intends to purchase before the mutual fund actually buys them. This may increase the market price by the time the mutual fund purchases these securities. This is known as front-running. In addition, the production and distribution of portfolio holding disclosures may increase the costs that the mutual fund incurs. Thus there is some risk that the returns on mutual funds that provide portfolio holding disclosures as part of their portfolio management services may be compromised. However, portfolio management companies that manage client accounts may prefer the transparency of mutual funds that provide portfolio holding disclosures.

Fund Performance

Studies have shown that the performance of mutual funds is not significantly affected by mutual funds provision of portfolio holding disclosures. Thus, by choosing to purchase for their client’s mutual funds that provide portfolio holding disclosures, portfolio managers can be confident that their clients will benefit from the increased transparency without reduced performance.

As with other portfolio management firms, we at Enriched Investing Incorporated put our clients’ needs first. Our team of professionals helps clients achieve their short and long-term goals. All else being equal, our portfolio managers would choose to purchase mutual funds that provide the transparency of portfolio holding disclosures. To find out more about how we can help, contact Enriched Investing Incorporated today.