Skip to Content
Fund Spy

Equity Fund Launches Are Surprisingly Common Despite Outflows

We saw some big trend reversals in 2012's fund launches.

With 2012 in the books, this is a fine time to look at trends in fund launches. I pulled data on the 484 open-end mutual funds launched since the end of 2011 so I could see where the fund industry is headed.

Stocks Over Bonds?
Maybe the biggest surprise here is that we saw more stock funds launched than bond funds, considering that investors still piled into fixed income last year. Generally there are enough trend-chasing folks in the fund industry to assure that recent inflow trends will sync up nicely with fund launches, but not in 2012. (I'm using Morningstar's broad asset classes here.)

We had 96 U.S. equity funds launched and 89 foreign-stock funds launched while there were 84 taxable-bond fund launches and a mere nine new municipal-bond funds.

The launch crown, though, goes to the balanced-fund group, where 121 funds were launched. There have been positive flows there, though the number is boosted by the fact that when a firm launches a suite of 529 college-savings or target-date funds, you might see 10 funds come out at one time.

One place that did reflect positive flow trends was the alternatives categories where 64 funds were launched.

So Much for Other Trends?
We only had one China fund and one India fund launched. And there was only one fund with the word "unconstrained" in its name. What happened to those bandwagons?

Biggest Debuts
Excluding funds clearly meant just for target-date offerings, 401(k) plans, and institutions, you get an interesting mix when looking at which funds have gathered the most assets. Wells Fargo Advantage Absolute Return (WARAX) (which has more than $2 billion), Transamerica Dividend Focused (TDFAX) ($850 million), HSBC Total Return (HTRAX) ($400 million), and Transamerica Small Cap Value (TSLAX) ($370 million) all hit the ground running.

The HSBC fund shows that alts funds continue to be a big draw.

Who Launched the Most Funds?
American Funds launched 15 funds but nearly all were 529 funds, so it's not that big of a development. Fidelity launched 14 funds. Some are advisor clones of retail funds the firm runs, and others are Fidelity Series funds designed specifically for its target-date lineup. However, it did launch Fidelity Global Equity Income (FGILX), run by Ramona Persaud. I wouldn't be surprised to see global and foreign equity-income launches grow as you can still find some decent yields in foreign equities.

The quant fiends at AQR launched nine funds. They are interesting funds, but retail investors have to go through advisors to get them. Transamerica was quite aggressive, launching 10 funds--mostly stock and balanced.

Two firms that consistently launch a lot of funds stayed active. BlackRock launched seven while its rivals at PIMCO launched six. PIMCO's biggest new fund is PIMCO Worldwide Fundamental Advantage Total Return Strategy (PWWIX), which has netted $525 million. BlackRock's newest funds haven't drawn a lot of assets--they've generally had more success on the institutional and exchange-traded fund fronts than with retail open-end funds.

DFA's launch of six funds is among the most interesting as it launched four growth funds despite its long-held value leanings. It now has U.S. large-growth and small-growth funds and international large- and small-growth funds.

Not everyone had big launch calendars. T. Rowe Price rolled out three funds and Vanguard's only fund was a 2060 target-date fund.

Most Intriguing
As usual, you have to sift through a lot of dross, but there are some interesting funds to watch. Joel Greenblatt has a long-short fund, Gotham Absolute Return (GARIX). Greenblatt is a well-known value investor, and I'll be interested to watch not only performance but also who he's shorting and buying. As of the end of October 2012, his top shorts were  Netflix (NFLX),  Amazon.com (AMZN),  DISH Network
(DISH), and Liberty Media. His top longs are EnerSys (ENS), Kulicke & Soffa (KLIC), and Esterline (ESL). The fund only has Institutional shares at the moment.

The Cheapest and the Priciest
One constant with new fund launches is that most of them start with high expenses. There are some exceptions among those designed for individual investors. T. Rowe Price Ultra Short-Term Bond (TRBUX) charges 0.35%, while Scout Low Duration Bond (SCLDX) charges 0.40%. The priciest goes to SCS Tactical Allocation (SCSGX), charging 4.04%, and GuidePath Altergis Multi-Strategy (GPAMX), charging 3.49%. Yipes. While alts funds have some appeal, you can see layer upon layer of fees and that's particularly challenging where the fund's goal can be a modest amount above inflation.

A Smattering of Manager Investment
Only a fraction of the 484 funds launched reported that the fund manager invested in the funds. Admittedly, there's a short filing window for a new fund to launch and have manager investment, so I wouldn't read that much into it. Still, if you want a read on whether the fund company believes in the fund, watch manager investment levels over the coming year.

Only a handful of managers started off above the $1 million level: Howard Gleicher of Aristotle/Saul Opportunity (ARSOX) and Mark Thompson, Dana Feick, and Rick Moulton of Riverbridge Growth (RIVBX). And Andrew Foster has more than $1 million in Seafarer Overseas Growth and Income (SIGIX).

Joel Greenblatt and Robert Goldstein have $500,000 to $1 million in Gotham Absolute Return (GARIX). David Miller of Catalyst Insider Long/Short (CIAAX)
 and Henrik Strabo of Rainier International Discovery (RAIIX) had between $100,000 and $500,000 in their funds. At Shenkman Short Duration High Income (SCFAX), Mark Shenkman has an investment in the $100,000-$500,000 range, and Nicholas Sarchese is in the $50,000-$100,000 range. Ernesto Ramos of BMO Low Volatility Equity (MLVEX) has between $100,000 to $500,000 in the fund. At Prudential Jennison International Opportunities (PWJAX), Mark Baribeau has between $500,000 and $1 million invested.

At Boston Common US Equity (BCAMX), Geeta Aiyer has $100,000 to $500,000 invested. Paul Murphy, Charles Henness, and John O'Connor each have $100,000 to $500,000 invested in IronBridge Large Cap (IBLCX). Thomas Putnam has $100,000 to $500,000 in FAM Small Cap (FAMFX). Christopher Hart has $100,000 to $500,000 in Robeco Boston Partners International Equity (BPQIX) and in Robeco Boston Partners Global Equity (BPGIX).

The Best Names
There are always some awesome new fund names. Here are my favorites: Aftershock Strategies (SHKNX), Taylor Xplor Managed Futures (TMFAX), Swan Defined Risk (SDRAX), and Eaton Vance Hexavest Emerging Markets Equity (EHEAX).


FundInvestor Newsletter
FundInvestor Want to hear more from the mutual fund experts? Subscribe to Morningstar FundInvestor for exclusive research, coveted analysis and proprietary ratings—neatly packaged and delivered to your inbox. One-Year Digital Subscription

12 Issues | $119
Premium Members: $109

Easy Checkout

Russel Kinnel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.