Overcrowding is behind a nearly 18% slump in the number of mutual funds launched in 2007 and a comparable percentage jump in those merged out of existence.
Last year, 430 funds were launched and 337 funds were merged, compared with 524 funds launched and 286 merged in 2006, according to Chicago's Morningstar Inc.
In addition, the number of share classes closed in 2007 totaled 563, up significantly from 305 in 2006, Morningstar said.
At the end of 2007, there were 8,017 mutual funds in existance, down from 8,118 at the end of 2006, according to the Investment Company Institute of Washington. Five years earlier, the ICI counted 8,269 funds.
"The downdraft in 2007 could mean that the market filled out and met the demand," said Andrew Gogerty, a fund analyst at Morningstar. "It was also a turbulent market in 2007, which didn't help at all in terms of new funds."
Last year's decline in fund start-ups follows two relatively robust years for new fund offerings and suggests the market is at or close to capacity, said Jeff Tjornehoj, Denver-based senior research analyst at Lipper Inc. of New York.
"In the retail space, target-date funds are sopping up all of the new money that's coming in," he said. "ETFs [exchange traded funds] are also pressuring some of the new fund creations."
RETRENCHMENT
Similarly, the pickup in mergers follows five relatively quiet years on the merger front and implies that fund companies are scrambling to stabilize their lineups after a period of product innovation.
"A lot of funds were launched in the last four to five years," said Neil Hennessy, president and chief executive at the Hennessy Funds of Novato, Calif. "A lot of what you are seeing is the merger of funds within their own family of funds."
Indeed, a flurry of new products inevitably leads to a period of retrenchment, said Howard Schneider of Practical Perspectives LLC, an industry consulting firm based in Boxford, Mass.
"That can happen when some of these products haven't gotten significant traction," he said.
Evergreen Investment Services Inc. of Canton, Mass., which manages $274.7 billion in assets, is in the process of merging a series of individual state bond funds into its larger Evergreen Municipal Bond Fund.
The board has approved the proposal, which will go before the shareholders in March.
PRODUCT CONSOLIDATION
"We are merging small asset bases into a national municipal bond offering," said Evergreen spokeswoman Lauren Sawyers.
A series of fund mergers is in the works at
Wells Fargo Funds of San Francisco, with $152 billion in assets under management. In late 2004, San Francisco-based
Wells Fargo & Co. bought $24 billion in mutual fund assets from Strong Financial Corp. in Menomonee Falls, Wis. Many of the former Strong funds were subsequently merged into
Wells Fargo's lineup.
"We looked at what has worked and what hasn't worked," said Andrew Owen, executive vice president at
Wells Fargo.
Sue Asci can be reached at [email protected].
