Just because a mutual fund has just entered the world is no reason to ignore it, financial planners and others say.
Start-ups can make sense if they’re run by a manager with a successful track record on another similar investment vehicle, fund industry observers say.
“If it’s a new fund with a manager who’s very experienced” in a certain type of investing, “then it’s worthwhile to look at,” said Rosanne Pane, mutual fund strategist at Standard & Poor’s. Conversely, investors should “be very cautious” in approaching a new fund with an unproven manager, she said.
While newly introduced funds lack performance history, which many people prefer to see before turning over their money, past returns may not indicate future returns, Pane said. In part, that’s because how well or how badly a fund has done is more or less related to what happened to that style in the market, she said.
Standard & Poor’s data showed 353 funds were introduced in 2003, and 444 more came on line last year. Another 47 debuted this year through April.
A potential advantage of funds that have just begun operating is that they often are small and own only a handful of stocks, so they can grow faster than larger, established competitors.
The average fund launched during 2004 ended the year with $73 million in its coffers, according to fund tracker Financial Research Corp.
Only two products that debuted in 2004 captured more than $1 billion in assets, FRC said. One was an exchange-traded fund, streetTRACKS Gold Shares (GLD), which attracted $1.4 billion, and the other was an institutional mutual fund, GMO US Quality Equity/IV (GQEFX), which took in $1.2 billion.
A small asset base can be a double edged sword, however, since it can increase a fund’s expenses. So investors should pay close attention to expenses, observers said.