Thursday, December 20, 2007

Mutual Fund Shareholders Vote With Their Feet

Following is a table showing the mutual funds with the largest outflow of dollars in 2007. Commentary on these outflows can be found in the SmartMoney article, Exiting Shareholders Impact Fund Performance.

(click on table for larger image)

As noted in the article:
...we'd stay invested in a fund whose long-term track record might be taking it on the chin recently because its style isn't in vogue. For example, growth funds have lagged the last five years. But now they are showing signs of life. Selling would mean missing out on a possible rebound. Be wary, though, of perennially poor performers or funds that have experienced several manager turnovers. After all, you might as well resort to a low-cost index fund and save yourself the headaches.

One surprising entrant on our list is the Vanguard 500 Index fund. Morningstar says investors pulled $10.2 billion from this fund in 2007. This is a case where the redemptions don't necessarily mean the fund is in the gutter. Some of the outflow is due to Vanguard recommending its Total Stock Market Index fund over the 500, since it has a more diverse array of stocks in its portfolio. However, that number is a bit deceiving. Earlier this year, Vanguard launched its new Signal share class geared toward financial advisors. By shifting, say, $5 million into this share class, advisors can save 40% on costs compared with other share classes. The option was so popular that money simply flowed out of one share class and into the Signal ones. In the end, only about $1.8 billion actually left the 500 Index fund's coffers. We wouldn't suggest following in those former shareholders' footsteps. This fund is still one of the best low-cost options out there.
In the end, before an investor switches out of one of these funds, they need to know the reason behind the redemptions.


Exiting Shareholders Impact Fund Performance
Smart Money
By: Rob Wherry
December 20, 2007

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