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Portfolio > Mutual Funds

For Income Funds, Name May Determine Destiny

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A rose by any other name …

Apparently marketing does make a difference, at least in the mutual fund world, notes Matthew Heimer on MarketWatch’s Encore blog.

“With interest rates having cratered as a result of the Federal Reserve’s post-recession stimulus policies, retirees and other investors have been scrambling to find investments that will produce the income they aren’t getting from Treasuries and other low-risk bonds,” Heimer writes.

As proof, he points to a tweet on Wednesday from Morningstar’s Fund Spy Russ Kinnel, the firm’s director of mutual fund research:

“For past 12 mo, the amount of $ flowing into funds with “Income” in their name is 3X larger than funds without “Income” in their names,” Kinnel posted.

“After my own quick and unscientific look at Morningstar’s database, two thoughts come to mind,” Heimer adds. “First: Funds with “income” in their names seem particularly likely to be actively managed (and thus more expensive than, say, index funds or ETFs).”

And second?

“A lot of income funds invest in the sorts of assets that have been getting clobbered as rates have started to rise–think utility and telecom stocks, real estate investment trusts and (of course) bonds.”

That, he concludes, may lead to a quick reversal in fortunes for the product, but for now, it’s clear what clients are looking for.

Check out PIMCO’s Gross Warns: Get Out of Market, Fed’s QE Chemo Treatment Failing on AdvisorOne.


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