Creation of Mutual Funds Falls Sharply in Saturated Market
Fewer U.S. mutual funds are being created this year than at any time since 1992, as money managers find it increasingly difficult to sell funds in an already crowded marketplace, according to an industry report.
About 860 new funds, including various share classes of the same fund, have been introduced so far this year, compared with 1,688 in all of 1997 and 1,411 funds in 1996, according to researchers at CDA/Wiesenberger.
“It’s simply getting tough to come up with new ideas with so many funds already on the market,” said Geoff Bobroff, an independent industry consultant in East Greenwich, R.I.
The number of mutual funds has more than doubled to 11,325 during the last five years, as the assets of the industry increased to $5 trillion today from almost $2.1 trillion at the end of 1993, according to CDA/Wiesenberger. About 70% of the funds created this year invest mainly in stocks.
“There are funds and options for everyone,” said Stephanie Kendall, an analyst at CDA/Wiesenberger in Rockville, Md. “You can buy funds that invest in Indian stocks or African stocks. There are funds out there for people who want to invest based on their religious convictions or social values.”
The reduction in fund openings this year also is tied in part to the increase in stock market volatility, Kendall said. Since July, the U.S. stock market’s “severe swings” have caused money management firms to delay introducing new funds, she said.
One increasing area of popularity for new funds is the advent of so-called tax-managed funds that are designed to reduce the taxes shareholders pay on their investment gains.
Fidelity Investments and Paine Webber Group Inc. introduced tax-managed funds last month, and Vanguard Group said Thursday that it’s opening a similar type of fund to buy small-company stocks.
Managers of tax-managed funds attempt to balance capital gains and losses by paying attention to the timing of asset sales and by limiting the amount of portfolio turnover.
Tax-managed funds are beginning to attract buyers, but it’s slow going because most new investments are going elsewhere, according to Boston-based Financial Research Corp.
More than 70% of the net new cash invested in stock funds in the first 10 months of 1998 went to the same 100 funds, including Vanguard Index 500 Portfolio, Janus Worldwide and MFS Emerging Growth, Financial Research reported.
That’s up from 1997 when about 66% of the net $231 billion that went into stock funds was invested in the same 100 funds, according to Financial Research.
“People have grown accustomed to putting money in the same funds, either through their 401(k) retirement plans or other investment programs,” said David Haywood, an analyst at Financial Research.
