Should You Invest in New Mutual Funds Right Away?

Fund Watch

Should You Invest in New Mutual Funds Right Away?

A fresh fund can have its advantages, as long as it has a manager you trust.

Let’s face it, there are plenty of reasons to avoid a newly launched fund. For starters, there’s the absence of a long-term track record, as well as the sticky question of whether the fund will survive. So why would anyone buy shares in a new fund?

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Because new doesn’t necessarily mean green. If the fund is managed by a proven investor who has honed his strategy elsewhere with good results (see Trusted Managers, New Funds), then you know, to some degree, what you’re getting.

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And there are other benefits. Managers at a new fund can build a fresh portfolio from scratch. There’s no need to hang on to existing holdings—perhaps to avoid triggering a taxable gain—that they might not choose to buy today. Plus, new funds are typically small, which means managers can move in and out of a security without tipping off the market or affecting the price. This is especially important with small-company stocks. “Those are all important considerations, and they can tip the scales toward a new fund,” says Dan Culloton, a Morningstar analyst. But nimbleness alone won’t make a difference unless the manager has a reliable strategy.

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