The researchers looked at all funds launched since 2005, globally. Their key findings follow with success being defined as attracting flows. We've divided them into two categories, those that have historically added or detracted from success:
Contributed to success:
- Frequent portfolio disclosure correlates with higher flows and higher risk-adjusted returns.
- Managers who own their fund have historically performed better and garnered more assets.
- Managers who possess a CFA are preferred by investors and have had higher risk-adjusted returns.
- Female portfolio managers have received higher flows.
- Coverage by a Morningstar analyst has had an economically large impact on future flows and returns.
- Funds launched from firms with large market shares have an advantage getting additional flows.
- Investors tend to prefer funds that invest according to specific style tilts, but these preferences have not all resulted in positive investor outcomes.
- Investors have revealed specific preferences for types of fund structure.
- Economic regimes characterized by high volatility and decreasing oil prices have historically been an advantageous time to invest in new funds.
- Fund ownership patterns suggest that investors discriminate based on manager buying behavior.
Detracted from success:
- High fees hurt both future flows and future risk-adjusted returns.
- A cannibalization effect exists at firms that launch multiple products at once.
- Funds launched into monopolistic categories are less likely to attract assets.
Good news for new funds
In a related video interview, Morningstar states "Did you know that new mutual funds account for 75% of open end fund flows!"
What Can You Control?
To us, it comes as no surprise that investors - and likely even more so advisors - want to know what's going on in your portfolio. Frequent disclosure though, in our view, must also be meaningful. Simply reciting every statistic about your fund on your website or in your quarterly reports can cause your reader's eyes to glaze over.
If you are launching a new fund, take the time to truly develop your story: Is it a story of risk management or risk taking for higher potential? Is it a story about corporate governance, companies with wide moats vs. their competitors, or hidden potential in emerging markets?
Knowing your key differentiators and getting everyone on your team using those ideas, charts and stats to frame your story will make you stand out.
The research also makes two points about the managers - interestingly during this historic period of a first woman-run at the presidency by Hillary Clinton - fund flows have shown a preference for female portfolio managers.Similarly, investors appear to feel more comfortable with CFA credentialed managers.
If either are part of your story, don't bury this information in their bios. Rather, shout it from the rooftops, feature it on your website, talk about it in your press opportunities.
Another potential inflection point is coverage by a Morningstar analyst. This is not always an easy task - so get to know the folks at Morningstar. Visit them on your trips to Chicago and don't be shy in pleading your case.
What can you do next?
Take some time to read Morningstar's full report. Then consider how you will get the word out about your new fund. Do you have a marketing plan as part of the launch ready to execute?
As early as June 1883 in the magazine The Chautauquan, a question was posited: "If a tree were to fall on an island where there were no human beings would there be any sound?" Investors and advisors want and need to hear about your new offering. And their ears may perk up if your fund displays some of the characteristics Morningstar has uncovered as important in their decision making.
For over 25 years, SunStar Strategic has helped asset managers define an overall strategy, develop their unique story and get the word out - through traditional and digital approaches to PR, web and collateral design, outreach programs, trade show assistance and more.
Download our free e-book and discover great tips to help you tell your story!