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Survivorship of mutual funds strikingly low.

The objective of a recent "safe investor" study was to evaluate mutual fund performance and to answer questions such as "are investors likely to outlive their mutual funds?" According to the study's findings, investors outliving their mutual funds is a serious issue. Also, advisors and their clients need to be aware of the impact of potential fund closures and mergers. Those disruptions are rarely positive for clients as they involve transition costs, portfolio management distraction and possible disruption to the investor's asset allocation.

An analysis of historical data indicated the importance of four factors:

Size: Larger funds are more likely to stay in business, a simple matter of economics.

Performance: Funds with good performance track records are more likely to survive.

Star ratings: The star system is in many respects a stronger proxy measure for survivorship than it is for identifying future top-performing funds.

Parent company stability: The fund's parent company is an important, but harder to evaluate factor in survivorship.

SOURCE: DANIELS. KERN, CFA,

PRESIDENT AND CHIEF INVESTMENT OFFICER FOR ADVISOR PARTNERS, WHICH CONDUCTED THE STUDY.
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Title Annotation:Annuities & Investments
Publication:Retirement Advisor
Date:Jan 1, 2014
Words:177
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