Weeding out closet indexers from true active managers is about to get a little bit easier, thanks to New York State Attorney General Eric Schneiderman.

After finding that some companies charge high fees for equity funds marketed as actively managed that basically hug an index, the state’s chief law enforcement officer wants mutual fund managers to publish data showing how much a fund’s holdings differ from its benchmark. Companies including BlackRock Inc. and AllianceBernstein have agreed to put out information on more than 400 funds, but the attorney general’s investor protection bureau wants others to follow suit.

The office “calls on all mutual fund firms to make active share information relating to their actively managed equity funds readily accessible to all investors,” it wrote in a 15-page report after surveying 14 mutual fund firms. “Active share may help an investor assess whether a fund’s fees are acceptable.”

Actively managed funds cost investors almost 4.5 times more per year than passive alternatives. However, “investors cannot necessarily assume that a high fee means that a fund will have a higher level of active management,” according to the report.

The attorney general’s study found that at least eight equity funds costing more than 1.5 percent had an active share of just 10 to 20 percent. But the vast majority of funds cost between 0.55 percent and 1.75 percent and had an active share ranging from 60 to 100 percent.

Some fund managers already provide this information to institutional clients, or to those who request it, but the bureau says mom-and-pop buyers should also have access to this gauge of active management.

This disparity is “an information gap that hinders retail investors’ ability to fully analyze the potential value proposition of an actively managed equity fund,” according to the report. “All investors should have equal access to active share information as they strive to make informed investment decisions.”

Source: Bloomberg