What’s in a name? Plenty, say fund managers and investment consultants.
And why not, when the name of the game — and its goal — is greater participation by 401(k) investors.
Take a name like “opportunities fund” or “select strategic fund.” Don’t all managers try to select their investments strategically? While the jargon may be obvious to money managers and plan sponsors, such vague terminology can be confusing to their ultimate customers, the participants — who probably don’t have MBAs and who may not know the meaning of even more basic terms, like “equity.” With the increasing emphasis on fund transparency these days, some managers and sponsors are starting to rethink what they call their products.
The long-awaited, new federal Labor Department rules on fees and transparency, in effect since August 29, have pushed the defined contribution world toward renaming, says Sue Walton, a senior investment consultant at Towers Watson. “There is a growing expectation that the whole mutual fund industry will be reviewed,” she says. “In the last five or so years, there has been an interest to better align the naming conventions of these funds with what their actual objectives and strategies are.”
“You want participants to make decisions based on their asset allocation,” explains Fredrik Axsater, global head of defined contribution investment strategy for State Street Global Advisors. “The most important thing is that with the name, you’re telling them, ‘This is how this fund fits into your portfolio.’”
Thus, after a top-to-bottom review in 2008 and 2009, State Street has changed the names of 51 funds. (It won’t reveal how many funds it has in total.) The EAFE Index Fund is now the International Index Fund. The Russell 1000 Index Fund has been rebranded the Russell Large-Cap Index Fund. And the Passive Bond Market Index Fund became the U.S. Bond Index Fund.
The renamings, Axsater says, more clearly describe what the portfolios hold. Few participants probably realize that EAFE means the Morgan Stanley Capital International index covering Europe, Australia, New Zealand and the Far East. Nor do lay investors necessarily know what kinds of companies are in the Russell 1000.
For that matter, even professionals might question the redundancy of calling something a “passive” “index” fund.
“We’ve given participants way too much credit for how much time they put in and what they understand,” says Walton.
It is harder for mutual fund companies to make these changes than for institutional funds and collective trusts, points out Roger Williams, a senior vice president at investment consultant Segal Rogerscasey, because “they spent a lot of money establishing that product on the retail scene.” Indeed, that’s how the problem began — with one firm’s aggressive growth or value fund trying to distinguish itself from everyone else’s, says Walton.
But plan sponsors aren’t waiting for their managers to move, Axsater and Walton say. Many 401(k) plans are doing what Walton calls “white labeling” — that is, combining several outside funds that use the same or similar strategies, dumping the official names, and putting their own plan label atop the cluster. Thus, she says, the ABC Company 401(k) plan would have “the ABC Company large-cap growth option” or “the diversified equity fund.”
Of course, not all funds need drastic renaming. The Fidelity Blue Chip Growth Fund seems clear enough.
Or maybe it’s only clear to a professional money manager, whose job is to understand which companies are considered “blue chip” and how growth is different from value.
Williams sees signs of change for the future. “If I were a new fund,” he says, “I would be kind of careful about the name.”
