Observers claim to see through OpenFund’s `transparency’ bid

Take your pick.

Don Luskin, co-founder of San Francisco-based MetaMarkets.com Inc., is either a huckster or on the cutting edge of a trend in mutual funds.

Whatever the case, his decision to post all the holdings of MetaMarket’s five-month-old flagship OpenFund in real time on its website is unprecedented in an industry that tends to play its cards pretty close to the vest.

Adviser Richard Bregman of MJB Asset Management in New York likes MetaMarket’s thinking. “More information is always better,” he says, adding, “I haven’t seen OpenFund, but I’ll be looking for it.”

Philadelphia mutual fund analyst Burt Greenwald, however, calls the move “sheer madness.”

MetaMarkets is “clearly being driven by marketing considerations,” he says. “It’s just trying to raise OpenFund’s profile in a marketplace of 8,000 mutual funds.”

The Securities and Exchange Commission requires mutual funds to disclose their portfolios just twice yearly, but MetaMarket co-founder David Nadig says giving customers greater transparency is no gimmick.

“Institutional investors, because of the size of their investments, are given full transparency. We’re just bringing the same privileges to the retail customer,” he says.

In addition to posting its holdings on the Internet, the company also broadcasts video of its trading room on the website so investors can tune in to ensure the fund’s traders are, in fact, trading.

The firm intends to go even further than that, says Mr. Nadig, who worked with Mr. Luskin as a managing director at Barclays and logged 11 years as chief executive of Barclays Global Mutual Funds.

How? By giving visitors to MetaMarket’s site the ability to create their own portfolios.

The strategy isn’t unlike those of portals that leverage the number of visitors to their sites into lucrative agreements with those who want to tap into their audiences, Mr. Luskin explains.

He declines to elaborate exactly how, or when, customers will be able to use the tools for everything from “paper trading to running General Motors’ pension plan.”

As the Internet makes finding information as simple as pointing and clicking, it’s become easier for fund companies to post information.

Many, like RS Investment Management in San Francisco, already use the web to provide investors with lists of their funds’ holdings, as well as sector and country weightings.

Providing much more than that, though, becomes dangerous to the fund company, says Rod Barry, co-portfolio manager of RS Information Age Fund, subadvised by Elijah Asset Management.

danger to investors seen

“If we posted our holdings on a daily basis, I imagine investors would just want to replicate the process,” he says. “We’d be giving away our proprietary advantage.”

Disclosing too much, too often, presents a danger to investors as well, says Molly Cisneros, spokeswoman for Invesco Inc., the Denver fund group:

“If we posted our holdings constantly and enough shareholders started buying and selling stock along with the fund managers, the investors could, feasibly, affect the prices of the securities, hurting the rest of the fund’s shareholders.”

Yet another concern, says Pete Greenley, spokesman for San Francisco’s Montgomery Asset Management Inc.:

“Mutual funds are designed and managed with a long-term approach in mind and frequent disclosure encourages a short-term investing mindset, which as a money manager, we don’t want to see.”

For now, at least, the SEC seems to agree that semiannual reporting shows sufficient responsibility on the part of mutual fund groups. Says SEC spokesman Chris Ullman, “There is no movement under way to change current regulations.”

The Investment Company Institute in Washington has no problems with the status quo, either.

“It’s not our position to pass judgment on the merit of new ideas,” explains Chris Wloszczyna, a spokesman for the mutual fund trade association. “But I can tell you the push for greater transparency is coming from a very narrow contingent. We haven’t seen broad support for changing regulations.”

Mr. Luskin says he isn’t bothered by the current rules. “If funds and customers mutually agree that the funds never share their holdings, that’s fine. I simply believe it’s a free market where the customer should ultimately choose.”