Meet the New Fund, Same as the Old Fund

Get ready for the latest craze to sweep the fund industry: rebranding.

Merrill Lynch has declared its intention to rebrand its fund lineup, and Morgan Stanley says it's considering following suit. Gabelli rebranded some of its offerings just last week. At Scudder, the big event will occur in February. Schwab has already finished the job, having taken action with a portion of its lineup in late 2004.

If you don't know what rebranding is, congratulations: You've avoided becoming overtaken by the consumer-marketing jargon threatening to engulf America. Briefly, when a company--making anything from cars to detergent--decides to alter its product's name, logo, image, and/or marketing message, industry pundits, and sometimes company execs themselves, call it a "rebranding."

Even an entire country can undergo rebranding. When Tony Blair and the Labor Party took control of the United Kingdom from the Conservatives, they immediately set out to alter Britain's image to make it seem young and energetic. As part of that effort they updated an old catch-phrase from the glory days of the British Empire, relabeling their country "Cool Brittania."

Sometimes such moves coincide with a genuine effort to reshape and improve the product. For example, a hotel that changes its brand name often has been bought by a different company, which then embarks on a remodeling process that truly makes the place cleaner and more comfortable. But just as often a rebranding project focuses only on superficial aspects such as packaging and image-making--the thing itself doesn't change much, if at all. It's an effort to boost sales through marketing alone.

Why Would Fund Companies Do It?
You might not think rebranding would pop up in the mutual-fund arena. After all, fund shareholders aren't mere shoppers, they are legally the owners of the funds they buy. Unfortunately, many fund companies view you simply as consumers and their funds as products to be sold. And when sales aren't going well, what do they do? For many, the answer is: rebrand.

Thus, eight Gabelli funds now sport the label GAMCO, and Schwab renamed some of its offerings Laudus. Meanwhile, Merrill Lynch has yet to say what the new name for its fund lineup will be or what other changes might follow.

Although the word itself grates, rebranding isn't necessarily something to be feared. In fact, there can be legitimate reasons for it. For example, AXP Funds' advisor split from parent company American Express in 2005, so a new name and image for the advisor and fund line was necessary (though Morningstar's Russel Kinnel considers the resulting choices uninspired, to say the least). And even in cases where the motivation seems primarily or completely sales-oriented--brokerage houses, for instance, think they'll have more success selling their funds through rival firms' brokers if the funds didn't carry their own company’s name--that in itself isn't evil. Fund companies are in business and seeking new avenues for growth is understandable.

The problem comes when fund companies see rebranding as an end in itself or as a way to bury an unpleasant history. Beware of companies that boast of their rebranding or repositioning of a fund lineup without paying commensurate attention to improving the funds' management and performance. For example, the prospectus filing from Deutsche Bank's investment-management subsidiary that announced the change of the name of its marketing arm from Scudder Investments to DWS Scudder and of its fund family from Scudder to DWS called the moves "part of our continuing commitment to superior performance, innovative products and quality services." There's no mention of how a name change can possibly affect the funds' performance. Nor does Deutsche Bank provide any other reason for the changes, other than noting that the new names will match the ones it uses elsewhere in the world.

Therefore, simply hearing a fund-company exec use the phrase "rebranding" (or something similar) should put you on alert. Shops with sound long-term strategies, such as Dodge & Cox, typically seem able to provide quite acceptable performances and attract assets without rebranding anything. I don't think anyone at Third Avenue feels compelled to rebrand Marty Whitman.

Also, watch out for serial rebranders. For example, this isn't Merrill Lynch's first go-around with the trend: In the 1990s, it launched some funds under the Mercury label. That project fell flat.

Know What You're Buying
How else should you respond to the rebranding trend? Even more than before, make sure you explore the background and performance history of every fund you buy and own. And if a financial advisor suggests a fund with an unfamiliar family name, ask if that family used to go by a different label. If so, ask what the old name was and why the firm's execs dumped it. Were they trying to cover up a weak performance history or other unpleasant connotations associated with the previous name, such as involvement with the mutual fund scandals?

Meanwhile, here's a suggestion for the fund companies themselves. Go ahead and rebrand if you consider it worthwhile. But, please, make sure to spend at least as much time, effort, and expense on improving your funds' management and performance and making them as shareholder-friendly as possible as you do on coming up with a catchy new name (or a nondescript one, as the case often is) and image. And if you work at Morgan Stanley and a consultant suggests that you start referring to your fund shop as "Cool Morgannia," politely decline the advice.