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Tuesday, October 10, 2000

The Fund Industry Contracts

Reported by Sean Hanna, Editor in Chief

Is the fund industry beginning to go through the long-awaited "great shakeout"? Though it may be too early to say for certain, intriguing figures put together by Wiesenberger suggest that it may be. One thing is for certain, the fund industry is likely to be offering fewer products on January 1, 2001 than it was on January 1, 2000.

The contraction in the number of products offered to investors is a result of both a sharp drop in the number of new funds launched so far this year and a jump in the number of funds closed either through liquidation or merger.

Altogether the fund industry has reduced the number of funds available by roughly 359, give or take a couple, said Ramy Shaalan, the author of the report and an analyst at Wiesenberger. Shaalan reports that through the end of the third quarter there were 176 funds liquidated, 419 funds merged into others and 236 new funds launched. At least nine of the funds which were merged were later liquidated.

Last year there were 807 new funds offered, 409 merged with other funds and just 160 liquidated for a net addition of 238 funds to the marketplace.

Wiesenberger only has reliable data on the net number of funds through 1998, but it is likely that this year marks the first in many in which the number of products has shrunk rather than grown.

Shaalan noted that many of the funds being liquidated are in sectors that have lagged in performance or been out of favor with investors. Thus, fixed income funds (especially municipal bond funds) and emerging market funds are seeing the most consolidation.

"The industry is going through a Darwinian struggle of 'survival of the fittest'," said Shaalan. He added, though, that the process is "good for investors" as the funds with the best performance are those that are surviving. "In the end, the players left may very well be the best of breed," he said.

Many of the funds being liquidated have relatively few assets or negative investment performance. The average fund being shuttered has operated only 16.5 months, according to Wiesenberger. The largest funds liquidated so far this year include Phoenix Seneca Mid Cap Portfolio ($389 million in assets), WPG US Larger Stock Fund ($146 million), Munder Value Y ($114 million), Forward Global Allocation ($110 million), and PIMCO Small Cap Growth Fund I ($65 million).

Not counted in the numbers are the merger of 17 funds by Liberty Financial that was announced this week. 

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