In a crowded mutual fund universe, the companies that run funds have to take steps to stand out from the rest. While investors always look for performance, many fund companies offer convenience as an added bonus by offering a wide variety of mutual funds.
Large fund families aim to make it easy for investors to diversify their portfolios across several asset classes. This tactic also serves an important purpose for fund companies: encouraging customers to keep their money under the same company's management rather than moving it to a competitor. Many fund families have dozens of funds under their purview, in many cases spanning nearly every conceivable type of investment.
The benefits of convenience
There's no denying that having all your money under one roof makes certain things a lot easier. Simply by looking at a single page on a website, you can see how your entire portfolio is doing. If you want to rebalance your investments or make a new investment, you can often do so quickly and efficiently without going through the full process of opening a brand-new account.
Recordkeeping is also simpler. You'll get a single statement detailing all your transactions. At tax time, you don't have to go through dozens of different forms; most fund families will aggregate all your taxable income on a single set of tax forms.
Also, in some cases, having all your investments with one firm makes you eligible for perks that fund companies offer to those with assets above certain levels. For instance, if you buy funds with front-end loads, investing through one company may make you eligible for a smaller load. In addition, some fund families offer discounted commissions or even financial planning services to those who invest enough money.
The power of inertia
However, fund families aren't perfect. While a fund family may have an excellent fund in one asset class, its offerings in different areas may not be nearly as good. For instance, Fidelity has plenty of strong stock funds, but in the international fixed-income arena, it doesn't have a top-rated fund.
Even in the same asset class, funds in the same family can differ widely. Vanguard's Primecap Fund (FUND: VPMCX ) earns Morningstar's top rating, based on excellent performance from picks such as Potash Corp. (NYSE: POT ) , Biogen Idec (Nasdaq: BIIB ) , and Monsanto (NYSE: MON ) . Yet even though it's also a large growth fund from the same family, the Vanguard U.S. Growth Fund (FUND: VWUSX ) earned the worst Morningstar rating over 10 years, largely by jumping into tech stocks like JDS Uniphase (Nasdaq: JDSU ) , Juniper Networks (Nasdaq: JNPR ) , and Veritas Software (later acquired by Symantec (Nasdaq: SYMC ) ) at precisely the wrong time.
Furthermore, when you look closely at several funds in the same family, you'll notice that in many cases, the same people serve as fund directors for all their funds. That raises the concern that fund directors won't act in the best interest of that particular fund's investors, instead choosing to put the good of the fund company first.
Whether or not to invest all your money with one fund company really depends on your individual temperament. If you're willing to accept the shortcomings of working within a single fund family, then the convenience may be worth it. On the other hand, if you want the best possible funds you can get, you'll probably have to use funds from different companies to fill out your portfolio.
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