According to SmartMoney magazine, there's an alarming new trend among mutual fund companies: They're phasing out many or all of their no-load mutual funds.
Why? Well, many funds are now being sold by financial advisors who get a commission for their role as the middleman. This comes from load charges, traditionally. Still, surely there are many people (like me) who select funds largely on their own, and won't want to pay anyone for selection services. A typical front-end load, after all, is 5% or more, significantly reducing your initial investment the moment it's invested. Invest $5,000, lose $250 or more. Invest $25,000, and lose $1,250 -- just to a salesperson.
You might think, as I did, that companies could just let no-load funds and their loaded counterparts co-exist peacefully. But then advisees could complain that they were invested in a load fund when a cheaper no-load option was available. Sigh.
What to do
The alarmist in me is troubled by this development. As strong funds -- the kinds we would want in our portfolio -- become loaded funds, we'll all lose. We'll have to fund no-load alternatives (which will be harder to do), or we'll have to forfeit a big chunk of our investments to loads.
Granted, some load funds still manage to beat the market. The Legg Mason Partners Aggressive Growth A (SHRAX) fund, for example, has beaten the market handily over the past five and 10 years, invested in the likes of Comcast
For the moment, there are still plenty of terrific, low-cost, no-load funds out there. And there are surely some top-notch fund families that will eschew adding loads to their offerings.
You can seek out great no-load funds on your own -- via the fund screener at Morningstar.com, for example. But remember to evaluate lots of factors, not just load. Look for managers with many years of tenure. Look for low expense ratios and low turnover among holdings. Look also for investment philosophies you respect and track records that inspire.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.