A new report argues that more frequent disclosure of mutual fund portfolio holdings is more likely to harm investors then help them.

The Investment Company Institute today presented its conclusions to the U.S. Securities and Exchange Commission, which is considering a requirement for funds to disclose their holdings monthly or quarterly, rather than biannually. ICI sees possible added risks from front running and free riding.

In a letter to the SEC, ICI points to substantial evidence that requiring all funds to disclose their portfolio holdings more frequently is contrary to the best interests of fund shareholders. “For example, more frequent disclosure would help professional traders and other opportunists more successfully front run a mutual fund manager’s trades. Similarly, more frequent portfolio holdings information would allow speculators to more accurately free ride on a mutual fund manager’s proprietary research and investment strategies.”

ICI notes that a survey of its members found that many funds already disclose portfolio holdings information more than twice a year. However, it also found that some mutual funds have determined that more frequent disclosure creates an unacceptable risk of facilitating abusive practices that would harm their shareholders.

In addition, members responding to the survey reported virtually no demand for more portfolio holdings disclosure from their shareholders. “There is no compelling reason for the commission to require more frequent disclosure,” the Institute wrote.

Included in the ICI’s letter to the SEC is a new study, examining the likely impact on funds if they were required to reveal all portfolio holdings more frequently than under current law. The study found that abusive trading activities would become more widespread and would adversely affect fund performance. According to the analysis, “the total return that shareholders receive from mutual fund investments would likely be lower than under the current disclosure standard.”

The study, authored by University of Maryland finance professor Russ Wermers, explains how more frequent disclosure could potentially raise fund-trading costs by increasing the risk that outsiders would anticipate fund trades and trade ahead of funds. Such “front running” can increase the price that funds pay to purchase securities and lower the price funds receive when they sell.

“Based on the serious potential for harm to fund shareholders, the Institute is hopeful that the staff agrees that it would be a grave error for the commission to mandate more frequent portfolio holdings disclosure by all funds,” ICI general counsel Craig Tyle wrote in a letter to Paul Roye, director of the SEC’s Division of Investment Management. “The risks of harm to fund shareholders far outweigh any potential benefits.”

Instead of requiring funds to provide encyclopedic lists of portfolio holdings more frequently, ICI suggests that the commission consider changes that will improve the quality of information about fund portfolios presented in shareholder reports. For example, it recommends that the commission consider requiring shareholder reports to include a streamlined schedule of investments that identifies the fund’s 50 largest holdings, or all holdings that exceed one percent of fund assets, along with graphic representations of portfolio information. A complete list of fund holdings could be made available free of charge upon request.