Why so many funds?

bigfreddiel

a quick screen shows 2000+ funds

some are good - some are mediocre - some are truly awful

my question is why don't fund managers just close the really bad funds that consistently fail to perform, whats in it for them to keep on failing year upon year?

or maybe they do!

fj

xylophone

Or perhaps they get paid regardless?;)

kharne

Surely the better question is why do people invest in funds that consistently under-perform?

Anyway, which funds are you referring to? Over what time frame? Which sector? Do you mean on an annual basis or an annualized rate? Do you mean negative returns or simply poor performance compared to the benchmark?

Maybe I'm missing something here, but are you wondering why there are so many funds on the market, so to speak? If so, I'm pretty sure the answer is clear. There are a lot of ways one can define an investment objective, and therefore a lot of financial vehicle offerings to fulfill specific requirements.

Is there really much more to say on the subject?

dunstonh

There are lots of companies wanting to offer their product. it is a retail market like any other. Some products are good quality or good value whilst others are poor quality or poor value. Just like any other retail market.

darkpool

i think the idea behind so many funds is that a few are likely to be doing well at any particular time. it means that when people go to an IFA the IFA can say "well this fund has done well in the past" and flog it.

there are of course many funds that are not quoted on morningstar. these funds are called "incubator funds". they are funds that are not open to the general public, if they do badly they are quietly killed off, if they do well they are advertised to the public.

http://www.smartmoney.com/invest/funds/do-mutual-funds-cheat-on-returns/#article_tab_article

dunstonh

i think the idea behind so many funds is that a few are likely to be doing well at any particular time. it means that when people go to an IFA the IFA can say "well this fund has done well in the past" and flog it.

You cant help yourself can you. Most of the funds in existence are closed and have never been recommended by an IFA. Yet you try and turn a subject to anti IFA to suit your agenda.

darkpool

dunstonh wrote: »

You cant help yourself can you. Most of the funds in existence are closed and have never been recommended by an IFA. Yet you try and turn a subject to anti IFA to suit your agenda.

i have seen academic research that says that fund managers start lots of funds so there are always some in the top quartile. do you not think that is relevant to the OP's post?

Agenda? Remind me, why do you post so much on a website meant for consumers?

dunstonh

i have seen academic research that says that fund managers start lots of funds so there are always some in the top quartile. do you not think that is relevant to the OP's post?

Quite possibly but that is fund manager activity. Not IFA.

Agenda? Remind me, why do you post so much on a website meant for consumers?

Why does anyone post on a website? !!!!!! has it got to do with you?

darkpool

dunstonh wrote: »

Quite possibly but that is fund manager activity. Not IFA.

Why does anyone post on a website? !!!!!! has it got to do with you?

but i bet some IFAs still use the old "these active UTs here have shown some spiffing returns, you best invest in them" argument.

i post because i don't like to see a consumer website over run with vested interests. of course you call me a "troll" because of this

Linton

bigfreddiel wrote: »

a quick screen shows 2000+ funds

some are good - some are mediocre - some are truly awful

my question is why don't fund managers just close the really bad funds that consistently fail to perform, whats in it for them to keep on failing year upon year?

or maybe they do!

fj

You cannot divide funds simply into good ones and bad ones using a "quick screen" based on capital return....

1) Different funds invest in different sectors. The customer may want to invest in specific sectors and so considers only those appropriate funds. Now over different time periods different sectors can give good returns or poor ones. The funds which invest in the currently poor returning sectors arent mediocre because of the poor returns.

2) Different funds have different investing styles. One fund may for example follow a very volatile index such as the FTSE100, another may deliberately invest in those shares that perform more consistently. So at times of high economic growth the first fund will be seen to give good returns, at other times the second fund will do better. Neither is mediocre or inconsistent, they just have different styles. Again it is up to the customer to choose the style most appropriate to his needs.

3) Different funds may have different objectives. For example an income fund's objective may be to provide the customer with a steady income. Capital return may be a secondary concern. So for those customers wanting the steady income, eg pensioners, buying such a fund isnt buying something medioce, they are buying something appropriate to their needs.

So dividing the fund universe into these second level categories rapidly reduces the choice for an investor from thousands into tens or less.

Then of course it is an open market - many fund managers want to obtain part of the market. So there may be several fund managers selling similar products. It's the same reason there are a good selection of cars, chocolate biscuits, or anything else, on the market. Just like cars some will perform better than others (depending on how you chose to derfine "perform"), some will be more expensive than others, the correlation between the two factors not being 100%.


Edit: To answer the anti IFA brigade - the job of the IFA is not to pick out of n000 the fund that will perfrom best but rather to identify the customer's needs and relate these to the available funds (or any other investments).

darkpool

Linton wrote: »

Edit: To answer the anti IFA brigade - the job of the IFA is not to pick out of n000 the fund that will perfrom best but rather to identify the customer's needs and relate these to the available funds (or any other investments).

so past performance doesn't come into it when clients chat to IFAs about UTs? most of the retail punters here seem to think past performance indicates future performance....

I've provided evidence that one of the reasons that there are so many UTs is so the fund management industry can say "this fund is top quartile".

how do you evaluate funds? do you look at past performance?