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Fund Spy

Why Fidelity Should Tell You What You Own

Portfolio holdings could be disclosed to investors more frequently.

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Fidelity once ran an advertising campaign featuring Peter Lynch that admonished investors to "Know what you own, and why you own it." Paradoxically, when it comes to portfolio disclosure, Fidelity makes it difficult to follow its own advice: It discloses the holdings of its mutual funds only twice each year, the minimum required by law. With a change in leadership, this would be a good time for Fidelity to revisit its policy on portfolio reporting.

Fidelity's argument against more-frequent disclosure of funds' holdings goes something like this: Providing quarterly portfolios, rather than the two per year it releases now, would be bad for fund shareholders. With these portfolios in hand, other investors could see trends in portfolio changes, extrapolate them out, then trade on that information. If investors saw that Bob Stansky had added shares of Citigroup (C) in the previous quarter, for example, they might reasonably assume that he was still buying. Stansky's purchases alone might drive up the price of the stock, so investors could buy in--hoping to make a quick buck and driving up the price Stansky would have to pay for additional shares.

Certainly, front-running can be a problem. Although most fund managers at smaller shops won't admit to front-running on the Fidelitys and Januses of the world, I did have one acknowledge that he'd profited from the practice. (In fact, he said, "I shamelessly front-run on Fidelity. That's off the record." Think about that.)

Scott Cooley does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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