A big-name newspaper recently slipped up in its interpretation of some data. The Wall Street Journal published an article about 12 days ago pointing to stunningly scant mutual-fund ownership by wealthy investors. But the story -- which appeared initially in the WSJ's Wealth Report blog and later in the U.S., European and Asian editions of the newspaper -- was based on a fundamental misinterpretation of the data.

According to the WSJ, the report Eye of the Beholder by wealth-market research firm Prince & Associates says that investors worth between $5 million and $10 million have a mere 1% of their money in mutual funds; those worth more than $10 million have not a cent in mutual funds.

Got 'em v. need 'em

In fact the report -- which is based on data culled from 19 separate surveys of around 1,100 affluent individuals conducted in 2004, 2005 and 2006 -- is about wealthy investors' take on "the importance of, and their interest in, specific investments products," according to the write-up by Prince & Associates that accompanies the data.

The view from above Strong interest in investing in... $500k-$1m (289) $1m-$5m (311) $5m-$10m (247) $10m-$20m (168)

>$20m(106)

Total (1,121)

ETFs

67.1%

49.5%

17.0%

1.2%

0.9%

35.1%

Mutual funds

58.1%

16.4%

1.2%

0.0%

0.0%

19.8%

Currencies

22.1%

27.0%

24.7%

18.5%

19.8%

23.3%

Start-ups

4.2%

6.1%

9.3%

13.1%

35.8%

10.2%

Hedge funds

5.5%

10.0%

38.1%

76.8%

76.4%

31.3%

Private equity

3.1%

7.7%

21.1%

42.3%

53.8%

19.0%

Source: Prince & Associates

In other words, 1.2% of those with between $5 million and $10 million expressed interest in investing in mutual funds -- in terms of viewing them as "very" or "extremely" interesting or important. And, as you can see right above, none of those with more than $10 million indicated similar inclinations.

But that doesn't mean their ownership of mutual funds is so meager. "They may have them already, but they're not interested in having any more of them," says Russ Alan Prince, president of Redding, Conn.-based Prince & Associates. "The message, if you're a mutual-fund company, is that this isn't the market to pitch to."

Maybe, but it might not pay mutual-fund companies to neglect the ultra wealthy altogether.

In the universe measured by Wilton, Conn.-based high-wealth-asset tracker and database publisher Private Client Resources, mutual funds accounted for 19.45% of total assets among private investors with between $5 million and $10 million. That's as of last Thursday.

Impervious

Robert Huebsher of Lexington, Mass.-based investment-data research firm Advisor Perspectives, says that mutual funds -- ex ETFs -- represent 11.3% of marketable security assets owned by investors worth $20 million or more and, with EFTs, figure prominently among these investors as vehicles for investing in non-U.S. markets. Advisor Perspectives tracks a database of about $50 billion in assets managed by RIAs for private clients.

Mutual funds definitely seem to decrease as a portion of overall assets among investors who far surpass $20-million mark, however. "The very wealthy do hold mutual funds," says Jeffrey Evans, an analyst with the Institute for Private Investors(IPI), a New York-based education and networking resource for ultra-wealthy families. "But it's not a major part of their portfolios." More than 40% of IPI families each have more than $200 million in total assets; another 35% of them have total assets in the $50-million-to-$200-million range.

But mutual funds are still popular among advisors, according to Advisor Perspectives' Huebscher. He says that 196 of the subscribers to his newsletter are fee-only RIAs. The 56 of them who say they advise on $500 million or more have 34% of their clients' assets in mutual funds.

The point is that a comparatively small piece of an out-sized pie can still be worth fighting for.

Meanwhile, Prince holds no grudges over the WSJ's misinterpretation of his data -- even though several trade publications took the newspaper's lead and made the same mistake. "It's an error," he says. "What can I say? It happens." -FWR

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