FINRA today announced that certain bond mutual funds must cease providing the average credit ratings for their portfolios, because the companies use different methodologies to compute the averages. If the agency is worth the cost of funding it, why doesn't it come up with an acceptable methodology and tell all the firms to follow it? If there is one average statistic that is useful for a high level view of a bond portfolio, it is the average credit quality of the portfolio. This allows at least a quick and easy comparison between two bond funds. Equity mutual funds need to have some of their portfolio descriptors examined, but the average credit quality, as measured by the average bond rating should be a no brainer. Taking this away from investors seems ill advised.
Now, at the same time, the SEC is proposing to give institutional investors in ABS securities more information for making their investment decisions. Whereas the current regulations require only statistics that describe the overall composition and performance of the asset pools underlying the securities, issuers would now have to provide much more details about individual loans in the asset pool, namely underwriting statistics, as well as payment performance. This seems reasonable and not unduly burdensome for the packagers of these securities.
So why on earth should bond mutual fund investors be left in the dark about their portfolios?
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