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Home>Research & Insights>Fund Times>5 Funds That Don’t Exist, but Should

5 Funds That Don’t Exist, but Should

They would be investment successes, although perhaps not commercial hits.

John Rekenthaler, 09/15/2017

No Shortage
I know, I know. There are already far more U.S. mutual funds, exchange-traded funds, and closed-end funds than listed stocks. If you purchased one fund each business day, you’d either expire before exhausting the current crop, or you’re this column’s lone teen-age reader. (Although come to think of it, I once met a 21-year old Australian while on vacation who knew of this report … strange that.) Who on earth would want more? 

Good question. Let’s just say that if the industry added these options, and eliminated 100 unnecessary offerings for each arrival, the world would contain 495 fewer funds and be better off for the exchange.

These five proposed funds aren’t for everybody, but they are for somebody. Many existing funds cannot make the same claim, being either high-expense duplicates of cheaper substitutes, or gimmicky offerings that encourage their investors to buy high and sell low. 

My prerequisites when assembling this list:

1) Broadly diversified funds

By and large, specialized funds are created when the marketing department outvotes the investment team. Although I do like the idea of targeted ETFs—that is, low-cost, transparent funds that carry concentrated portfolios, such as owning the stock market’s 25 cheapest stocks—but I will refrain from adding more clutter to an already crowded field. 

2) No alternative strategies

See above. Over the past decade, a host of “alternative” funds have been launched, many of which can short the market and/or use options. As with specialized funds, most have relatively high expenses and haven’t performed very well. This group, too, could benefit from the launch of some cheaper and more transparent funds. Once again, I will refrain. 

is vice president of research for Morningstar.

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