Many mutual fund companies spent July embroiled in a variation on the chicken-or-the-egg question. But for fund managers, the question was: "Which is more important? The name or the mandate?"
New Securities and Exchange Commission rules dictated that, by the end of July, mutual funds had to invest a minimum of 80% of assets in securities consistent with the fund's name. So while everyone else was on vacation, many mutual fund company executives and their lawyers were scrabbling to find new names for their funds that would be more descriptive of their holdings. Or, they were busily filing mandate and prospectus changes with the SEC to make their holdings match the name of the fund. There were 55 mutual fund name changes or "80% rule" prospectus changes made in July alone, according to fundfiling.com, a database of SEC filings from Strategic Insight Inc., New York. In contrast, last January there was only one "80% rule" prospectus change filing, according fundfiling.com.
Dan Culloton, a columnist for Morningstar Inc., Chicago, said in a story on the company's website that, when it came to a choice, more mutual fund managers opted for style change, "more explicitly defining their investment universes."
For example, according to SEC filing information from fundfiling.com, the Meritocracy Medical Specialist Fund changed its investment strategy so that a minimum of 80% of assets are invested in the stocks of medical and healthcare companies, up from 65%.
When managers chose to rename their mutual funds, they tended to get more literal. The INVESCO Gold Fund was renamed the INVESCO Precious Metals Fund, for example, and the Franklin California Growth Fund will become the Franklin Flex Cap Fund because its cash and non-California company investments exceed 20% of the portfolio.
