These Mutual Funds Are New but Still Worthy
Although they've been around for less than five years, many of these funds benefit from a wealth of experience.
During the bull market of the 1990s, some investors were entranced by the idea of new mutual funds. In an era in which some popular funds had grown big and bloated, many investors assumed that being small and nimble would confer a return advantage on the newbies, enabling their managers to trade in and out of smaller, less liquid issues.
Of course, all market environments are different; in a small-cap-led rally, new funds with small asset bases might actually have an advantage over already existing ones with more assets to put to work. But a 2014 analysis by director of manager research Russ Kinnel doesn't support the notion that newer funds have a leg-up over larger ones. Examining the subsequent performance of new funds launched in 2004, 2006, and 2008, he found that new funds generally had lower success rates than already-existing ones. The "success rate" measure captures whether a fund survived the time period examined without being liquidated or merged away and also outperformed its peer group. Results from the class of funds launched in 2008 were particularly discouraging, with an average success rate of just 35%. Many of the funds launched in that year--the heart of the bear market--didn't survive, let alone outperform.
Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.