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Investors as a whole are primarily allocating their new investments to a small number of mutual funds and to a smaller number of mutual fund companies. Investors have invested over $400 billion in the 2843 different mutual funds, but one-third of those assets are invested in only 50 of those funds and one-half of those assets are invested in the largest 100 funds. There are benefits to following the market leaders. Larger mutual fund companies and larger funds have the ability to reduce costs and attract the best professional money managers. However, the biggest limitation is that todays better-selling mutual fund may not be tomorrows winner. This is true for any mutual fund but it seems to plague the best seller, and the one that garners the most attention, the most often. So buying the equity fund that was yesterdays best-seller isnt a strategy that produces excellent returns. You do not have to go fully in the opposite direction and ignore these hot funds, but you should understand their limitations and strengths. They became best-selling funds because they have merit, but you have to access that merit within your own well-diversified portfolio, and not the crowds current investment trend. |
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