What's on the fund menu

When you have a meal in a restaurant you expect to see a detailed menu before you order your food. This means that when you come to pay your bill, you know exactly what your money was spent on.
The same rules do not apply in the world of fund management.

When Fidelity launched its new Global Special Situations fund last month, it invited applications from new investors. But when investors who decide to buy into the fund send off their cheques, they will not know which shares are in the fund portfolio.
This approach is not unique to Fidelity. This is how the fund industry operates. The Financial Services Authority (FSA), which regulates fund groups, does not require them to provide this information when they launch a fund. Instead it says they must declare their investment objectives and give a clear idea of where the fund will be invested, for example in UK large cap shares or Japanese smaller companies.
At first glance this might seem rather vague and investors might be forgiven for saying: “we want to know precisely what the fund manager is buying with our money”. But industry experts say there are very good reasons for maintaining the current position.
Toby Hogbin, of Credit Suisse, the fund manager, says: “In the first place any managers who disclosed their intended portfolio would alert the whole market to the fact and this would tend to send up the price of any shares on the buy list.
“This is commercially sensitive information and managers do not want to tell the stock market or rival fund managers what they are doing.”
However both the Investment Management Association, the industry trade body, and the FSA recognise that a balance has to be struck between fund managers’ desire to play their cards close to their chest and investors’ right to know how their money is being managed. So the FSA does require fund managers to produce a report twice a year which is known as the long report and which must contain a full list of the shares in the portfolio.
This twice-yearly snapshot of the portfolio is the most detailed picture investors can obtain though it is worth pointing out, firstly, that the long report is not sent out automatically to every investor. Most will receive instead a less detailed short report, which will typically list merely the top ten fund holdings. Secondly even the portfolio details that are released are usually about three months out of date partly, says Mr Hogbin, because successful fund managers do not want rivals to be able to copy their stock selection.