A Shrinking (Fund) Universe

With ETFs being the investment choice for many investors and advisors alike, it should come as no surprise that the Mutual Fund Universe is shrinking amid bear market hangover:

Call it survival of the fittest, or a thinning of the herd.

On the heels of a vicious bear market, mutual fund closures and mergers are on the rise. The pace is so rapid that 2009 is shaping up to be the first time in seven years that the world of nearly 8,000 funds is shrinking rather than expanding.

Through early this month, almost 500 funds had disappeared, according to investment research firm Morningstar. That’s about twice the total of new funds started this year. The last time closures outnumbered launches was 2002, when the bursting of the dot-com bubble compelled the fund industry to downsize.

The story goes on as to what to do and what to look if you get a mutual fund liquidation notice. If that has happened to you, be sure to read the entire link.

While having a variety of investment choices is always a good thing, 8,000 mutual funds are way too many, especially in view of the fact that ETFs are picking up the slack. Even in the relatively small ETF world, some have already disappeared due to lack of interest (volume) and redundancy.

The shrinking universe has not only affected newcomers but also funds that have been around since the 80s and early 90s, and have had a wide following. Poor management and possibly restrictive trading policies could have added to their demise.

I was affected indirectly as one fund, which had been a part of my international Trend Tracking Index (TTI) since 1994, just closed shop. The fund, which shall remain nameless, was replaced and the TTI updated accordingly.

This happens every so often and does not affect the continuity or accuracy of any of the TTIs.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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