Market Timers Not Just Mammoths

A few years ago, fund companies took heat for letting large, special status customers quickly buy and sell swaths of stock to capitalize on small movements in price. So-called market timing, watchdogs warned, hurts those investors who buy and hold their funds, typically the little guys.

But a recently released independent analysis of trading activity at Columbia Funds between 1998 and 2003--the year the scandal broke--shows that two-thirds of those who timed the market had no special arrangements with the firm. Moreover, during that 5-year span, Columbia's gains were stunted by about $150 million, according to an article in The Wall Street Journal.

Individuals who traded through their company-sponsored 401(k) retirement accounts accounted for roughly $120 million of that, while the nine companies Columbia had brokered deals with cost long-term investors $30 million.

Although the trading does not benefit long-term holders, it is not illegal. The Securities and Exchange Commission did, however, charge Columbia with cutting deals with most favored clients, which the company settled for $140 million.

Results of the study were surprising to some because it showed that timing by investors was far more common and widespread than previously thought.
"What you see is the marketplace at work," said Thomas Theobald, an independent trustee for some Columbia Funds.  Since the scandals of 2003, many companies have cinched the loopholes timers relied on. "In my opinion, it's inconceivable that this sort of thing can happen again," said Theobald.

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.