Should You Invest in New Mutual Funds Right Away?

published 3 August 2012

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?

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.

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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Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.