Posted on 09/09/2002 8:11:39 AM PDT by arete
A record number of mutual funds are headed in a new direction: oblivion.
Since the bear market began in March 2000, 414 stock mutual funds have been liquidated, says Morningstar, the mutual fund tracker. That's half the liquidations in its database, which stretches back dozens of years and covers 4,074 stock funds. An additional 566 stock funds merged into other funds.
The number grows if you count different share classes for the same funds. Many funds issue multiple share classes, which give investors several different ways to pay sales commissions on their funds. Using that methodology, 1,741 stock funds have been merged or liquidated vs. 1,672 before the bear market began. Of course, since 1990, the number of funds has quadrupled.
If there's not enough interest from investors, a fund will liquidate -- sell all its holdings and distribute the proceeds to investors. More often, funds merge with a more successful fund. Either way, its record vanishes. Why funds wither:
* Failed concepts. Members of StockJungle.com picked the stocks for the Internet site's Community Intelligence fund. The fund folded in August 2001 after falling 42% the previous 12 months.
* Tiny sectors. As the technology stock bubble expanded, fund companies sliced the tech sector thinner -- too thin, sometimes. Example: Turner Wireless and Communication fund, which merged into Turner New Enterprise, a diversified fund. Turner Wireless had fallen 81% in its last 12 months.
* Bad sellers. In this bear market, investors want conservative funds. Riskier funds have wilted. For example, Federated Aggressive Growth fund, born in the boom days of November 1996, folded into Federated Kaufmann fund on May 17. Federated Aggressive Growth fell 22% in its last 12 months.
As fund growth has slowed, small and midsize fund companies are being bought out. ''It's not the tremendous growth business it used to be,'' says Scott Cooley, senior analyst at Morningstar.
When two fund companies merge, they often have duplicate funds. Reducing extra funds saves administrative costs, says Jim Tambone, co-president of Liberty Funds Distributor. Liberty, which owns Stein Roe, Acorn and Newport funds, will merge 21 funds in November.
Bond funds have been a big victim of fund mergers. Morningstar says 584 bond funds have merged or liquidated since March 2000.
New funds bring creativity to the investment arena, says Roy Weitz, editor of FundAlarm, an Internet site. Dead funds are a natural part of that cycle, like trees that decompose on the forest floor, he says. But there's one big difference: ''Some human thinks up the fund and then has to kill them.''
Comments and opinions welcome.
Richard W.
Which means it started when Bush became president, right Dems?
I assume from your smile, that you recognize that that has always been the case. After all, they tell you that "past performance is no guarantee..." then the whole pitch talks about how great past performance was. Better that they be required to report the truth:
"Past performance is no INDICATION, WHATSOEVER, of future performance."
If it were, it sure would be a simple game!
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