|
All in the fund family
|
 |
May 18, 1999: 3:41 p.m. ET
Industry pros debate the pros and cons of staying with one fund group
|
NEW YORK (CNNfn) - Blood may be thicker than water, but some industry pros say you should be careful if you want to keep all of your nest egg in one mutual-fund family.
While you can simplify your life with one statement in the mail, one 800-number to remember, and one Web site to read, there are some pitfalls to investing in one fund group.
"No one fund family has all the best types of funds," said Lou Stanasolovich, president of Legend Financial Advisors in Pittsburgh. "One fund family might be good with domestic equities but lousy with bonds and international funds."
Staying within a family was popular up until the early 1980s because funds were mostly "load" funds that charged a sales commission and other fees, Stanasolovich said. If you bought more than one fund, you could save on these costs.
But with the arrival of no-load fund groups and fund "supermarkets" where you can buy many brand names, it is not necessary to be a faithful family investor, Stanasolovich said.
Karl Graf, president of Graf Financial Advisors in Wayne, N.J., said he has clients who are loyal to Fidelity and Vanguard. But he agrees with Stanasolovich.
"I would look for the best investments wherever I can find them," Graf said. T. Rowe Price, Vanguard and Fidelity offer brokerage services and supermarkets where you can buy funds from other companies as well, he said.
"You have the convenience of one statement, but you're not limited to one company," Graf said.
Another factor to keep in mind is the "favorite stock," issue, said Russ Kinnel, editor of mutual funds at fund researcher Morningstar.
"When you have all the funds in one family, maybe sharing the same analysts' research, various biases work into a portfolio," Kinnel said. At a company like Janus Funds, for example, many of the funds share a lot of stocks in their top 10 lists. (Efforts to reach somebody at Janus were unsuccessful).
A fund family may also suffer if a group of top managers leaves, Kinnel said. Or a fund group may try a company-wide strategy that doesn't work out. For example, Fidelity funds invested in bonds several years ago and performance suffered.
"There are different styles and risk controls you see across the board at fund families," Kinnel said. One way to counteract this is to invest some of your money in index funds that are not affected by manager changes and other factors, he said.
You also would not want to go with a company that has one investing theme, Kinnel said. For example, Oakmark Funds are excellent, but they are all value-oriented funds. Likewise, Janus Funds are all growth, while Royce Funds are small caps.
Stanasolovich questioned what will happen at Fidelity, which has focused on large cap stocks in many funds, when the market starts swinging back in favor of small caps.
"There's huge overlap at a fund family," Stanasolovich said.
But Kinnel thinks it is possible to build a decent portfolio with one group if the family is big enough, such as Fidelity, T. Rowe Price or American Funds.
"If you are going to go with one family, you should go with one that has a lot of depth," Kinnel said.
Tracy Curvey, a senior vice president of customer and development at Fidelity, argued the fund group is so large that an investor can get exposure across the board in asset classes, from large caps to emerging markets.
"You really can construct a well-balanced portfolio with one family," she said. "It's easier to do business in one place."
Fidelity is unveiling a new tool on its Web site this summer that will help investors put together a portfolio. They will be able to choose whether or not they want all Fidelity Funds or a variety of names.
"Investors are looking for consolidation," Curvey said. "With 8,000 mutual funds and thousands of securities to choose from, you want to be in a place to organize it all together."
On average, Fidelity customers have about 60 percent of their assets with the fund company, Curvey said.
Rich Stevens, a principal of personal finance services at Vanguard, said the fund group can offer both diversification and consolidation to investors.
Vanguard also hires sub-advisers to head actively managed funds to prevent "group think." Vanguard has a portfolio review group that acts as a style police force to make sure managers do not drift.
"It's only fair if people ask for a large cap value fund, we can't have managers deviate from that style," Stevens said. "As long as the funds you choose stay that way, you can't have duplication."
-- by staff writer Martine Costello
|
|
|
|
|
 |
|
