There's a lot going on in the mutual fund world, and if you miss something, it could end up costing you money. To keep you up-to-date and on top of things, below we'll scope out some of the recent happenings in the mutual fund industry during the past week, and how they may affect your portfolio.
The downside of being early
As I've written before, 2011 is shaping up to be a big year for active ETF launches. While there are only a few dozen such funds available now, experts predict that a slew of competitors will hit the market soon. Unfortunately, one company that was one of the first players in this space is finding it difficult to stay competitive, given the distribution power some of the bigger names in the business enjoy.
Grail Advisors launched some of the first actively managed ETFs back in 2009 and early 2010, including Grail American Beacon Large Cap Value
Grail's difficulties demonstrate some of the pitfalls that come with investing in a new and developing investment product like active ETFs. It's too early to say how things will shake out for Grail Advisors, but it would appear that there is at least some risk of its funds being terminated.
Investors should realize that they run this risk, along with a corresponding risk of lack of liquidity, when taking the plunge into new products like this. Despite the two aforementioned Grail ETFs being in existence for 20 months and 12 months, respectively, they have only managed to garner a collective $4.3 million in assets. This is another reason why I think investors should probably stick to traditional passively managed ETFs for now. The active ETF space is still developing and shaking out its competition; let other folks be the guinea pigs for now.
Eating our young
Bond guru Bill Gross's latest investing commentary paints an unflattering picture of the American populace, comparing us to the female praying mantis which eats the head of its mate. Gross opines that Americans continue to spend and run up debt, while symbolically eating the heads of the next generation, who will be forced to deal with the fallout from our profligate ways.
Gross recommends that stock investors seek opportunities outside of the debt-strapped U.S. and other similarly situated developed nations (with the exception of Canada) and look toward emerging markets. He also predicts higher inflation and a weaker dollar as a result of our spendthrift ways.
His downbeat assessment of our willingness to kick the fiscal can down the road instead of making hard choices today is spot-on. As our nation's debt load as a percentage of GDP grows, it will almost certainly act as a drag on further economic growth. And while I agree with Gross that investors should have at least some exposure to emerging markets, I would caution investors against piling too heavily into that asset class right now. Emerging markets have had a tremendous run-up in recent years, with the MSCI Emerging Markets Index returning a cumulative 317% over the past decade!
If you're looking for diversified emerging-markets exposure, consider a solid actively managed fund like T. Rowe Price Emerging Markets Stock (PRMSX). If you prefer exchange-traded funds, Vanguard Emerging Markets Stock ETF
Showing some love
The venerable fund shop American Funds is getting a lot of love – at least from financial advisors. According to consulting firm kasina's FA Vision Brand Index, which ranks firms according to their positive perception among advisors, American Funds took first place among its peers, receiving a score of 25.06 --almost three times higher than second-place Vanguard's ranking of 8.58. According to the rankings, American Funds was given props for being the most "dedicated to advisors." That could go a long way toward understanding the firm's popularity among this group.
While I think it's admirable that American Funds has such good relations with the financial advisor community, I don't think that being "dedicated to advisors" really says much about whether or not individual investors should buy its funds. A fund shop's primary purpose should be to increase fundholder value, not to garner business from financial advisors.
Fortunately, American Funds measures up quite well on that front, too, offering a wide selection of first-rate fund options. One of my favorites here is American Funds Growth Fund of America (AGTHX). I like its current focus on tech stocks with high growth potential and low earnings multiples. I'm still big on the future outlook for reasonably priced tech names, which should perform well as the economy firms up and tech spending increases.
There's a lot of good stuff going on at American Funds, although I do wish the funds were available to retail investors without having to pay any kind of load. If you can buy some of the shop's better funds in your company-sponsored retirement plan while avoiding the front-end load, do so. For the rest of us, we'll just have to wait for greater access to the funds, and to be shown just as much dedication as financial advisors are.
Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. The Fool owns shares of Vanguard Emerging Markets Stock ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.