Market Timers Leaving, By Choice or By Force

August 24, 2004, 1:00 a.m. EDT 1 Min Read

Those who participated in market timing during the recent mutual fund scandals are being punished by redemption fees or even told to stay out completely, according to The Wall Street Journal.

"Some [companies] are saying, Well allow you four trades a year, and others are saying, Weve got you marked as a timer; we dont want your money," Steve Landis of Landis Financial Investment Services told The Journal. Landis doubles as president of the National Association of Active Investment Managers. That firm used to be called The Society of Asset Allocators and Fund Timers Inc.

As a former timer, Landis admitted that "I did a trade yesterday, and I was holding my breath hoping theyd take it. So far, they have."

Even though the Securities and Exchange Commissions suggestion of a mandatory 2% redemption fee on quick trades never went through, several firms have installed them, anyway. In fact, the SEC is reportedly considering adopting a policy that urges all fund companies to use redemption fees as an anti-timing mechanism.

Three former timing mavens, Rydex, ProFunds and Potomac Funds, only began to shun timing recently after experiencing huge growth over the past year. Potomac admitted that some of its success could be a direct result of the scandal, even though it started to flourish before Eliot Spitzers name started appearing in the paper last September.

"What essentially has taken place is that due to the illegal activity, mutual fund restrictions have grown increasingly tight, forcing the traditional active managers to seek other havens, like Potomac," Louis Flamino, national sales manager of Potomac Funds, told the Journal.

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The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.