CHICAGO — Ibbotson Associates Inc. expects to institute a new objective measurement that will allow it to avoid recommending mutual funds where market timing and late trading are rampant.
But at least one financial consultant believes it might unfairly penalize innocent funds.
The new measure will estimate the diluting effect net redemptions have on a mutual fund's bottom line, Roger Ibbotson, chairman of the firm, said last month at its asset allocation conference in Orlando, Fla. Details are still being hammered out.
Funds that allow rampant market timing and late trading generally have greater net redemptions than other funds, he said. The greater the net redemptions are as a percentage of average net assets, the higher the diluting costs to the fund.
With that in mind, funds that have high estimated diluting costs won't be included among the funds Ibbotson recommends to its clients, Mr. Ibbotson said.
But not everyone agrees with the company's approach.