Haven't heard of MarketRiders? Your shareholders may have. The founders of the advisory firm specializing in building portfolios of ETFs have picked what has now become a very public fight with active asset managers thanks to a pickup by the blogs at the New York Times.

Writing for the "Bucks" blog at the NYTimes.com, Jennifer Saranow Schultz excerpts an email letter from MarketRiders to their clients that compares the sponsors of actively managed mutual funds to cigarette makers, and not in a good way.

For nearly 40 years, unbiased research from every corner of academia and industry has demonstrated that buying a portfolio of actively managed mutual funds is a "loser’s game" and that the Morningstar 5-Star rating system has little predictive value. Sadly, investors using it, have lost billions in retirement savings to unnecessary fees, taxes and under performance.

A portfolio of actively managed mutual funds is absolutely, without question, as bad for your wealth as smoking is for your health. In 1953, Dr. Ernst Wynder published a ground breaking study that established the health risks of cigarette smoking. In response, the leading tobacco manufacturers organized a massive counter-attack by forming the "Tobacco Institute Research Committee." What sounded like an unbiased research organization was really a well-funded public relations ploy to calm down the public. For over 40 years, these manufacturers engaged in brutal litigation and campaigns to manipulate public opinion. Finally, industry insiders, Dr. Ian L. Uydess, Dr. William A. Farone and Jerome K. Rivers stepped up and testified against their employer Philip Morris which forever changed the industry.

For years, the mutual fund industry has waged a similar war against the passive index investment methods that we support. Like big tobacco, the mutual fund industry is large, profitable and immensely powerful. With large advertising budgets to influence "unbiased" mainstream media, they guide investors into bad investments. Morningstar has lined its pockets as a willing accomplice. Mr. Kinnel directs Morningstar’s research and has just announced that their rating system is a little bit better than bogus. In 50 years, will he be heralded as the first industry insider to finally tell the truth?”

While Schultz focuses on the "nastiness" of the email, she also pulls in links to earlier coverage in the paper (see here and here) that focuses on fund expenses. The Bucks blog had also already covered the little-known MarketRiders

To all this Schultz asks: "Them sound like fighting words to us. What do you think?"

The paper takes comments, so let her know. Or at least click over and read the whole thing. 

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