Fund investors weigh next move
By Rulss Wiles
Arizona Republic
If you own a mutual fund at one of the companies caught in the ongoing scandal, should you sell out?
Some critics say yes, as a way to send a message to crooked fund companies and their sleepwalking boards of directors. But the answer on selling isn't so clear-cut.
"It's too early to tell if you want to be running from these fund companies," said Randy Oldenburg, an investment adviser at Camden Financial in Scottsdale, Ariz.
Some observers worry that investors will lose faith in the industry, whose success depends heavily on fund owners' trust. But so far, investors have barely shrugged about the scandal. In fact, they added $17.3 billion in net new money to stock funds in September, according to the Investment Company Institute.
Fernando Almeida of Scottsdale, Ariz., has money invested in Janus Capital Management funds, but suspended new contributions a couple of months ago, when the scandal broke surrounding that firm.
"The average investor is totally out of touch with what's happening in these mutual-fund companies and how our portfolios, our assets, are being managed," said Almeida, an international trade and finance consultant.
He has left money in the funds because he doesn't want to face capital-gains taxes, but company letters aimed to assure shareholders also haven't swayed him.
Part of the difficulty is that the scope of the problems still isn't fully known.
Also, investors trying to sell out of certain groups, such as those run by Putnam Investments, could face a "back-end load" or surrender charge of as much as 5 percent or so. And anyone holding a fund outside of an IRA, 401(k) plan or other tax-sheltered accounts could trigger capital gains on which taxes would be owed no later than next April 15.
Investors are debating what action to take.
"I have some money invested in Putnam, but I don't know what to do about it," said Jeffrey Sherman, president of the Sherman Group, a landscape-design company. "I'm considering pulling it out and moving it to another fund."
George Fraser, a senior vice president at brokerage McDonald Financial Group in Phoenix, said he's extremely disappointed with the company.
"Everyone now has questions about Putnam," he said. "It's front-page news."
Fraser, who serves as the consulting broker for roughly 30 401(k) plans, about half using Putnam as their 401(k) plan administrator, rapped the company for taking too long to drop Lawrence Lasser, the firm's chairman and chief executive officer, and for "not really admitting they did anything wrong."
Another problem with sticking with implicated fund groups is that their operations have been disrupted.
Besides firing or suspending the six portfolio managers, Putnam has taken hits from the pension funds of Massachusetts, New York, Pennsylvania, Hawai'i and two other states. The states have pulled billions of dollars from Putnam.
Russel Kinnel, a researcher at Morningstar Inc. of Chicago, stopped short of advising investors to abandon Putnam, although he did recommend against putting new cash in the company's funds.
