Undaunted by the
popularity and outperformance of index-tracking investments, mutual fund
companies last year rolled out 193 new actively managed stock funds,
many with some highly colorful concepts.
The fund companies
aren't giving up their efforts to win investment dollars with their
stockpicking prowess.
Rather, they are floating funds that are increasingly niche-oriented in the hope of getting shelf space next to the generic S&P 500 index and other passive funds that are sucking cash out of active funds.
Last year, passive funds brought in $166 billion in new investor dollars, while investors pulled $98 billion out of traditional funds run by stockpickers.
The idea behind the push to specialized funds is that as index funds and exchange traded funds increasingly take up market share in the broadest categories, fund companies can still find profits in the spots where passive funds can't - or won't - compete.
Of
the new actively managed stock funds introduced by firms in 2014, more
than half focused on niche strategies or markets, according to
Morningstar data.
New funds in 2014 included the ATAC Beta Rotation
fund, which attempts to move in and out of sectors based on inflation
expectations, and the 3D Printing and Technology fund.
A new actively-managed fund typically requires as much as $60 million in start-up costs, and will often need that much in assets before they become profitable.
Index funds, by comparison, typically have much higher break-even points because of their lower fees, said Luke Montgomery, an analyst at Sanford C. Bernstein & Co.
If a fund doesn't become a hit with investors, then companies can always pull the plug. The average fund lasts just 7 years before it's closed, according to Lipper data.
Most firms either sell the fund, merge it with another one, or send cash back to their shareholders for the value of their holdings.
Rather, they are floating funds that are increasingly niche-oriented in the hope of getting shelf space next to the generic S&P 500 index and other passive funds that are sucking cash out of active funds.
Last year, passive funds brought in $166 billion in new investor dollars, while investors pulled $98 billion out of traditional funds run by stockpickers.
The idea behind the push to specialized funds is that as index funds and exchange traded funds increasingly take up market share in the broadest categories, fund companies can still find profits in the spots where passive funds can't - or won't - compete.
A new actively-managed fund typically requires as much as $60 million in start-up costs, and will often need that much in assets before they become profitable.
Index funds, by comparison, typically have much higher break-even points because of their lower fees, said Luke Montgomery, an analyst at Sanford C. Bernstein & Co.
If a fund doesn't become a hit with investors, then companies can always pull the plug. The average fund lasts just 7 years before it's closed, according to Lipper data.
Most firms either sell the fund, merge it with another one, or send cash back to their shareholders for the value of their holdings.
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