Here's the bad news: In 2008, the stock market's big drop took most stock funds down with it. And the word "most" really doesn't reflect the magnitude of the majority. There are more than 8,000 mutual funds out there, and out of all of the ones focused on U.S. stocks, only one ended 2008 in the black, according to The Wall Street Journal. That would be Forester Value (FVALX), which rode holdings including Kraft Foods (NYSE:KFT), Johnson & Johnson (NYSE:JNJ), and Heinz (NYSE:HNZ) to a 0.4% gain in 2008.
The big drop cost the fund industry trillions in assets under management. Moreover, in response to the market's fall, investors took a net $234 billion out of stock mutual funds in 2008, reversing inflows of $91 billion in 2007, according to the Investment Company Institute.
A tactical move ...
With their revenue dependent on retaining assets, many funds are worried. At least one fund company is making a smart move to attract more investor dollars, and hopefully that will become a trend among other funds as well.
Deutsche Bank's (NYSE:DB) DWS Investments unit has decided to reduce its sales loads on some of the mutual funds it offers. In case you didn't know, loads are fees which many funds levy on investors that can amount to 5.75% or more of an initial investment. On almost a dozen funds, DWS plans to eliminate loads completely for investments of $250,000 or more, and cut loads for smaller investments under $100,000 from 4.5% to 2.75%.
We've long recommended no-load funds, and research supports that position. Even when you ignore the money you spend up front for the load, no-load funds often perform better than their load-laden counterparts. But given that fund companies like Goldman Sachs (NYSE:GS), Ameriprise Financial (NYSE:AMP), and Principal Financial Group (NYSE:PFG) rely on revenue from sales loads, it's unlikely that loads will go away entirely. So it's nice to see some loads shrinking or even disappearing.
This might be the beginning of a positive trend for investors and funds alike. Yes, funds will give up some revenue, but they'll also attract investors and recommendations from advisors -- both of whom are increasingly drawn to no-load funds.
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