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Fund Spy

Avoid These Trendy Funds

Flavor-of-the-month offerings are usually a bad deal for investors.

One of the key questions we look to answer with  Morningstar Stewardship Grades for funds, which we re-launched two weeks ago, is whether the firm focuses more on stewardship or salesmanship. Firms that are focused on salesmanship often do whatever it takes to make a quick buck. Top stewards, by contrast, take a sober, fiduciary approach to money management.

When they launch new funds, companies tip their hands about whether the salesmen or the stewards are running the show. If a fund shop rolls out funds that fill a valuable role in investors' portfolios, that investors are apt to use wisely, and that play to a firm's investment strengths, that's a strong clue that the stewards are driving the agenda. On the other hand, firms that launch gimmicky, ripped-from-the-headlines funds invariably have short-term asset-gathering as their top priority.

When I look across the funds that have launched over the past year, I'm happy to see that many shops seem to have gotten religion about not bringing trendy gobbledygook to market. Among the recent launches, I see a surfeit of target-maturity and global funds, both of which are viable investment categories.

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