Fund Closings and Mergers
The performance gap between index funds and most actively managed funds may actually be larger than research shows, given that many of the least successful funds are no longer in business. By closing or merging their least successful funds out of existence, fund companies skew the statistics of actively managed funds, leaving just the records of the most successful to stand against index funds.
Funds in unpopular sectors, those with poor performance records, and funds with assets of less than $60 million are likely candidates for merger or closure. Fund companies seeking to merge funds into other funds aren’t doing the shareholders of the original funds any favors in most cases. Frequently, funds are merged into other funds with dissimilar objectives.
For example, in 2002 Dreyfus asked shareholders of the Dreyfus Premier Small Company Stock Fund to approve a merger into the MPAM Mid-Cap Stock Fund. Shareholders who originally purchased this fund for its small-cap focus would receive shares in a mid-cap fund, which is a major change in investment focus.
With the proliferation of ETFs, we’ll also see some (especially those with narrow strategies or that follow specific sectors) close for lack of size or poor performance. Again, it’s important to check the asset base; ETFs with less than $50 million in investments may not be viable.
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About Danielle Schultz
Learn more about Danielle Schultz and read her blog.
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