The Incredible Shrinking Mutual Fund Universe
Bristlecone Fund, we hardly knew ye.
For your next investment, were you planning on buying E*Trade S&P 500, Kids Fund, Surgeons Diversified Investment, Bristlecone Fund, or PIMCO Fundamental Advantage Tax-Efficient Strategy? Well tough. None of them exist anymore. They've all been liquidated or merged into other funds.
They are not alone. A total of 396 funds have been erased so far this year, compared with 438 in all of last year. On the flip side, new fund creation has slowed dramatically. There have been 156 new funds launched this year, compared with 487 for all of 2008. As a result, we're on pace for the first net drop in total funds since 2002. The figures are for open-end mutual funds excluding ETFs which conversely continue to grow.
Last year's market implosion has naturally led to more destruction and less creation. You may recall that in the fourth quarter of 2008 and the first quarter of 2009, not only were funds depreciating rapidly, they were also getting hit with huge waves of redemptions. This meant that many funds were unprofitable for the fund company. The industry rule of thumb is that you need $100 million in assets to turn a profit on a fund, though I'm sure that varies quite a bit depending on the costs wrapped up in each specific fund.
Russel Kinnel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.