Mutual Fund Options Abound
Has your mailbox clogged with brochures on new mutual funds?
Think you've seen the last of them?
Forget it! There's a lot more to come.
Sparked by a robust stock market, humming US economy, stepped-up personal income, and continued flows of retirement dollars into the stock and bond markets, mutual-fund companies continue to crank out new funds at a mind-boggling pace.
"I think we're getting as many new funds this year, so far, as last year, and probably even more," says Laura Santini, managing editor of Fund Marketing Alert, a newsletter published here.
"We get tons of information on new [fund] filings. There's still a lot of expansion in mutual funds, despite all the existing funds," she says.
"There's been a dramatic increase in the number of funds in the past year or so, and we frankly see no end in sight yet," says John Collins, a spokesman for the Investment Company Institute (ICI), the main trade group for the mutual-fund industry, in Washington. "We're seeing more than one new fund a day now on average."
For the period through May this year, for which complete statistics are available, ICI counted 7,058 mutual funds. That's up by 561 funds over the 6,497 funds counted at the end of May 1997.
That figure does not include some 2,000 or so additional fund listings that are share classes of existing funds. Some funds will have two, three, or four share classes, each class having distinct trading characteristics. But even if a fund has several share classes, the stock portfolio is the same for all sub-listings.
Throughout the late 1990s, Mr. Collins says, each calendar year has seen an increase in the number of funds over the prior year.
Among the types of new funds being created: bond funds of all types, particularly high-yield (junk-bond) funds, index funds, European funds, general industry-sector funds, real-estate funds, and specialty funds. (One fund company, for example, will reportedly soon be marketing a "golf fund" that will invest in products and services used by golfers. Another company will be coming out with an "athletes fund," linked to sports athletes. Several funds will be linked to social activism issues.)
"From a buyer's point of view, this is a great universe of opportunities," says Chicago-based mutual-fund expert Tim Schlindwein. Choices for fund investors are almost endless, he says.
Case in point: Vanguard, which already covers the world of index-fund investing, has just added three brand-new index funds: a mid-cap index fund, a small-cap growth index fund, and a small-cap value index fund.
With the additions, Vanguard now has index-fund listings in all major equity investment styles (such as value and growth) as well as different categories of funds (stocks/bonds), says company spokesman John Woerth. Vanguard currently has 97 funds.
Ironically, many of the newer funds tend to come in areas that are already well covered, or are undergoing difficulties.
Funds that invest in REITs (real estate investment trusts) showed a major run up in value last year. Yet, REIT funds have been underperforming the market in recent months. Despite that, some new REIT funds continue to come to market, says a spokesman for the No-Load Fund Investor, a newsletter.
Part of the reason, he says, is that the decisions to set up the funds were made a year or so ago, when the REIT market was red hot.
When it comes to buying into a fund, a little caution may be in order, experts say.
Some companies like to argue that new, smaller funds grow faster than larger, and more established, funds.
But not always, experts say. Sometimes a small fund will jump simply because it's easier for a fund manager to put a small amount of money to work.
But sometimes it will go nowhere - and even be forced to shut its doors or merge with another fund.
"You should buy into a fund because it meets your particular investment needs and goals," says Mr. Schlindwein, "not just because it has been a top performer in the past" or because it sounds "hot."
New funds are always being created. Investors, he says, should do their homework and find the funds that meet their goals, whether those funds are new, old, big, or small.
When buying into a fund, consider its investment style, the track record of its manager, its level of customer service, the composition of its portfolio, and its long-range growth potential.