Dim-witted mutual fund investors might get a kick out of the
Monument Internet fund's 3-for-1 share split. Everyone else should realize that splits are for stocks, not funds.
"Basically, it doesn't mean crap," says Pittsburgh-based financial planner Rick Applegate. "Maybe the person who hasn't thought this through thinks, 'Wow, this thing's hot!' But I think the only purpose it would serve is to bring more money into the fund."
Monument Internet, which will turn just 1 year old next month, announced Wednesday that it's splitting its shares due to "numerous requests from shareholders and financial advisers who missed our fund when it was originally priced in the $10-per-share range." Monument Internet closed at about $27.73 on Wednesday -- a figure the fund isn't comfortable with. The split will be effective Oct. 29.
But what some other financial planners -- and indeed, other mutual fund companies -- say is that the price of a mutual fund share doesn't matter, and that Monument's move has more marketing than merit behind it.
Splits for stocks technically shouldn't have any bearing on a company's share value, either. But they often do. Many Internet stocks which split earlier this year quickly ramped back up to their presplit prices.
But unlike stocks, mutual funds are sold in round dollar amounts, not round share lots, and their share price can't be affected by the buying or selling of the fund. Instead, the price is based on the underlying value of the stocks in the fund's portfolio. In addition, mutual fund shares can be sold in fractions, which further diminishes the importance of their price.
For example, the
has several funds with share prices close to, or above, $100. The
Vanguard 500 Index fund is currently priced at more than $118, and the
Vanguard Health Care fund goes for about $93 a share. But a $10,000 investment in either fund is still a $10,000 investment.
Vanguard spokesman John Demming says the company hasn't contemplated share splits for these funds. "What's the point?" Demming asks. "It's not like people invest money based on the number of shares. They tend to invest in dollar amounts."
He does note, though, that Vanguard has used share splits in the past. He contends it was for bookkeeping reasons, though, and not to bring the prices down.
Monument Funds Group
President David Kugler says brokers who sell Monument Internet -- which comes with a 4.75% load -- asked him for the split for an improved selling point. Kugler, who was once a broker and is ever the salesman himself, refers to his former brethren as "distribution partners."
"My job is to service shareholders and distribution partners, you know, to keep good relationships," Kugler says. "They thought that it would be a good idea to get
the share price back down to $10, and a bunch of their folks were very interested in that for various reasons, a lot of which were emotional."
That explanation makes one fee-only financial planner bristle.
"If you're basing your investments on emotional reasons, maybe you ought to reconsider your research process," says Steve Janachowski, a partner at
Brouwer & Janachowski
in Tiburon, Calif. "Maybe your story ought to be that people are wasting their time focusing on a mutual fund's share price."
Monument doesn't dispute that it's trying to attract funds with the split, either. At $47 million, the fund has notably less in assets than the $579 million
Internet fund and $2.4 billion
Munder NetNet fund.
"The best way for
portfolio manager Alex
Cheung to do the best job with the mutual fund is to get a nice steady stream of liquidity into it," Kugler says.
Of course, this isn't the first time that Monument has come up with a novel concept for bringing attention -- and cash -- to its fund. When Ryan Jacob suddenly
quit his job as manager of the competing Internetfund this summer, Kugler
waived Monument's load temporarily for shareholders who transferred their accounts from any other science and technology fund. Then, when
entered the field with its
fund in August, upstart Monument issued a press release welcoming the white-shoe firm to the field. ("It's true!" Kugler quips. "They're only helping the Internet industry get stronger and more mature.")
For good measure, the Monument Internet fund is now introducing B shares, or shares with a back-end load, as well. That 5% load, or sales charge, is imposed when investors redeem shares.
Asked whether his firm is focusing more on marketing then on investing, Kugler simply points to his fund's 115.5% year-to-date return. And then he notes that marketing, like handing out prospectuses and monogrammed ballpoints, is all just in a day's work when it comes to mutual funds.
"As a small company, you've got to work hard and diligently every day to grow that company," Kugler says. "We might do some things that maybe Vanguard doesn't, but we're proactive and try everything we can. We're just trying to run a business."
Can't fault a guy for that.