Transcripts

"Of Mutual Interest,"-John Waggoner, Mutual Fund Columnist at "USA Today"

SUZANNE PRATT: In tonight's "Of Mutual Interest," why buying a newly launched mutual fund could be a risky proposition. Here's John Waggoner, mutual fund columnist at "USA Today."

JOHN WAGGONER, MUTUAL FUND COLUMNIST, USA TODAY: You can do many silly things with your money. Buy a sculpture from a starving artist? Why not? Invest in an Australian bank CD? It could work. Invest in a new mutual fund? Are you crazy? There's almost never a good reason to buy a new fund. New mutual funds fall into two categories, the faddish and the superfluous. Faddish funds are probably the most dangerous. Fund companies roll out new funds mainly because they want you to invest in them. But people don't like to invest in fund categories with lousy performance, even if those are the areas most likely to increase in the future. The fund industry obliges people by rolling out new funds in areas that have seen red-hot growth, like commodity funds, for example. In the past 12 months, the fund industry has rolled out 43 exchange-traded natural resources funds, with specialties ranging from water to copper to cattle. Unfortunately, by the time a fund has spotted a trend, designed a fund and gotten clearance from the government to offer it to the public, the trend has not only slowed, but gone into reverse. If history is any guide, the plethora of new commodity funds means that commodity prices will soon be falling. In most cases, new, diversified funds aren't worth looking at, either. You can now choose from 555 large-company growth funds, many with fine records. Why buy one with no record at all? The one exception: sometimes, truly great fund managers move to other fund companies or start new funds. In that case, you have the opportunity to invest in a fund with a good manager and a relatively small asset base. That's a good deal, but one that's all too rare in the mutual fund industry these days. I'm John Waggoner.