Study Reveals Mutual Funds Have Done No Better Than Stock Market
Editor's Note: The opera
tion of mutual fundi recently
wai the subject of an exhaus
live itudy. The following dis
patch ii an analysis of how
effective they are in investing
for their shareholders in the
slock market.
By EDWARD COWAN
United Press International
Washington - il'FD - A major
study of the mutual fund in
dustry comes to the conclu
sion that the funds as a group
have done no better in the
business of making money in
the stock market than the
market itself.
That is, the funds' perform
ance about equaled that of
the Standard and Poor's 500
stock average.
This comparison raises the
provocative question of
whether the average investor
might not just as well play the
market directly as indirectly
by buying shares in a mutual
fund. A mutual fund is an in
vestment company whose bus
iness is buying securities,
chiefly common stocks.
Examined Industry
Prof. Irwin Friend, head of
a four-man team at the Whar
ton School of Finance, Uni
v e r s i t y of Pennsylvania,
which examined the mutual
fund industry, said the ans
wer to the question is this:
If investors bought a ran
dom selection of stocks listed
on the New York Stock Ex
change, they would on the
average do as well as a mut
ual fund. The word "average"
in this case means the sum of
losses by some of these in
vestors and profits by others.
Which gets to why people
buy mutual funds. They don't
want to choose which stocks
to buy. They feel they don't
know enough about the mar
ket and they don't have the
time or background to find
out.
Moreover, they don't have
enough money to diversify
their Investments for safety's
sake to buy a sufficiently
broad variety of stocks so that
they don't have all their
money in one or two in
dustries. Sales Commission
What about the 8 per cent
sales commission most mutual
funds charge? Can't the direct
investor avoid that.
For the small investor who
can ill afford large risks,
Friend said, achieving diver
sification comparable to that
given by a mutual fund could
cost more in brokerage fees
than 8 per cent. There also
are the costs and inconven
ience of bookkeeping, he
noted.
However, Friend observed
that purchasers of "front end
load" monthly investment
plans may realize "only lim
ited returns" if they drop the
plan after one or two years.
Because a sales commission
figured over the life of the
plan is deducted at th
"front end," it may exceed 50
per cent of first-year pay
ments and 30 per cent of pay
ments in the first two years.
Most people with a few
hundred or even several thou
sand dollars In a fund probab
ly would conclude from the
i study that, all things consid
ered, they might as well leave
their money in. Not a few un
doubtedly are satisfied if they
do only as well as the market
at least on a rising market.
Grown Enormously
Since the first open-end in
vestment company was
formed in 1924, the mutual
fund industry has grown
enormously. After nearly be
ing extinguished by the 1929
crash, the industry began to
recover.
Its great days came in the
bull market after World War
II. As of Dec. 31, 1961 there
were 344 open-end mutual
funds with assets of S24.4 bil
lion. An estimated 5.3 million
individuals were share hold
crs. Open-end means no limit
to the amount of money the
fund can take in and invest.
The Wharton school study
of 189 funds, made for the
Securities and Exchange com
mission, is the most exhaust
ive examination of the in
dustry in more than 20 years.
Although nominally analyt
ical, it breaks out in several
places with clearly implied
criticism.
Probably its most pointed
observation is that there are
"potential conflicts of inter
est" in fund practices and in
their affiliations with invest-
MedfordTribune
SECTION C
MEDFORD, OREGON. THURSDAY, AUGUST 30, 1902
PAGES 1 to 10
ment advisers and stock brok'
ers.
Appear Higher
The discussion of "potential
conflicts of interest" was
based on the funds' manage
ments profiting excessively
Three Local Men To
Attend Convention
Larry Rose, Walter L. Wil
son, and Randy Hugdahl,
members of the local branch
of the National Association of
Letter Carriers, will attend
the 43rd biennial convention
of the group. The convention
will begin Sunday, Sept. 2,
in Denver, Colo.
William C. Doherty, Cin
cinnati, will retire as presi
dent of the NALC this year.
He has served 30 years as a
national officer and 22 years
as president.
at the expense of their share
holders. More specifically,
advisory and brokerage costs
appear higher than they need
be, especially for the larger
funds. Lower costs could be
reflected in increashed divi
dends to shareholders.
The funds undoubtedly will
have more to say about this.
They already have said that
fees paid advisers, based on
fund size, are inadequate
when a fund is young and
small. Therefore, it would be
unfair to scale fees down as
they grow with a fund, even
though the cost of advising
the fund rises less rapidly
than the fee.
Friend said his sludy team
was making no ethical judg
ment about funds, although
he did say they encourage
economic growth by lowering
the cost of capital. He de
clined to describe the 595
page report as either favor
able or unfavorable to the industry.
Old Time Cars To
Be in Jubilee Event
The Old Time Car club will
participate in the Illinois Val
ley Labor Day Jubilee in
Cave Junction Sept. 3. Mem
bers will meet at 10:15 a.m.
and the parade will begin at
10:45 a.m.
Members should wear old
timer costumes. Following the
parade, cars will be exhibited
at the rodeo grounds, the club
members will visit the Kerby
ville ghost town, and a picnic
will be held at Sclmac lake,
The club will meet at 8
p.m. Tuesday, Sept. 11, at tha
club house.
it exists TOD AY L.
"POO?
WHITE
TRASH"
6 REASONS FOR SHOPPING HER
i
Check Our Specials in
LOCKER BEEF
CUSTOM
MEAT CUTTING
WARM ROOM
LOCKERS
2330 CRATER
LAKE AVENUE
Shop daily 9 A.M. 'til 9 P.M., Sun
days 9 A.M. 'til 8 P.M. Ad prices
effective through Sunday. No sales
to dealers. We reserve the right to
limit.
MONEY
ORDERS
Fast Film Service
TV & Radio Tubes
(Testing and Sales)
THRIFTY GREEN STAMPS!
9lts EDrt with
mm iHArnsiki
coupons
' UUHj Vtlttlblt Qt
Just send 3 front panels
from Award Margarine
cartons. Award will send
you coupons for 2 FREE
lbs. See derails in store.
1-lb. Pkg.
NEW AND
ROYAL GROWN
SODA
7 BIG
QT.
BTLS.
$100
II
PLUS
DEPOSIT
Demonstration Fri. & Sat.
ICED TEA SPECIAL
A NEW BLEND
A Tito Ceylonj,'-
rz7
I Nestea
NESTEA
Economy
93c size
Aluminum Foil 33
Tuna 4 Cats !TL 2r 23
R. I Wyandotte Select Pitted M $100
IPC OllVeS SV ox Cen H for
few J 11 Underwood $"00
Deviled nam 5
Cut Green Beans 5 $100
Nestle Morsels ... 5,T
II j I . Delicious Chocolate mu
Nestle Quick ass 89
Bagley Pears -r 19
Folgers Coffee a 4997
Folgers Instant Coffee 79
Pineapple Juice ;rr.: 29
Cut Rite Wax Paper 4T
Whiff Dog Food 16,T
Scoff Confidefs s, 39
Scott Confidefs
48s
Reg. $1.73
Now Only ..
$149
1
P SHORTENS
UMIT PLEASE ? X-Af
peggllM,.m
H) a "hVA limmth cflf
FOR EASY-TO-FIX MEALS
Sure Fresh Orange Juice k J $11 00
6 ox yuj R
Rosarita Mexican Style Dinner (3) c
Jorgensen's Mellorine (3) C
Flav-R-Pac Grape Juice 6U$1 00
12oz UTR U
(fftESH)
Pg?ODU
CE
J. H. Hale
CANNING PEACHES
perfect for canning or slicing
$'
n
LUG
Seedless Grapes
Thompson
10
lb.
Gravenstein Apples- 10
ib.
CARROTS
Garden Fresh
2 x. 1 9'
CANTALOUPE
Tasty Jumbo Size
5i$1
00
SOU
ANS
All Meals il Grandview Are
tha Finest, and
UNCONDITIONALLY
GUARANTEED
You Must Be Satisfied
, VMM
H FRYERS
PAN READY
TOY
a
EACH
2-lb. Average
MORRELL
E-Z-CUT
HAM
ALREADY BAKED WHEN
YOU BUY IT I
07 ib.
iliamook Cheese
2 Lb. Loaf
S329
Foil G
ooked Hams
Morrell
Pride
Canned
Hams
CHOPS
10P1
00