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Rekenthaler Report

What European Fund Investors Can Learn From the United States

The curious case of closet indexing.

Prod, Not Prescribe
Last month, news broke that the European Securities and Markets Authority, Europe’s equivalent of the SEC, was considering taking action against so-called "closet index" funds--mutual funds that purport to be actively managed, but which in practice hold portfolios that are very similar to that of an index. ESMA is worried that such funds mislead shareholders by promising one thing and delivering another.

Or, perhaps ESMA is feigning concern, as a closer reading of the reports reveals that the fuss so far has come from other parties, with ESMA being pressured to take action. It may well be that ESMA is murmuring sympathy but has no intent of following through.