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Rating:How Many Fund Mergers in 2000? Not Rated 3.0 Email Routing List Email & Route  Print Print
Wednesday, April 11, 2001

How Many Fund Mergers in 2000?

Reported by Tamiko Toland

Wiesenberger Financial recently released a report analyzing last year's record fund closures, but the firm's most impressive figures come from a report still in the works. Last year, 531 fund mergers took place, smashing the previous record of 409 funds merged in 1999. Mergers greatly outpaced closings, which numbered 225 in 2000, barely edging out 1998's record of 222.

Furthermore, the number of mergers has shot up this year. The first quarter of 2000, 133 funds merged; in the first quarter of 2001, 188 funds merged. If the trend continues throughout the year, 2001 could see 752 fund mergers, over 40 percent higher than 2000's figure, itself 30% greater than the previous year.

As Jerry Seinfeld would say, what's up with that?

Wiesenberger is still working on its analysis, but lead mutual fund analyst Ramy Shalaan offered several observations from his scan of the data. "What I'm noticing is that most of the fund mergers are internal," he said. "A big obvious part of it is that some of these funds are declining in assets, so the fund company opts to put the assets of two or more funds together. There's a new shift, so it really warrants a couple of weeks of analysis before we issue a report."

Shalaan also noted that fund mergers resulting from merger and acquisition activity often take quarters, if not years, to fully play out. Fund ranks will continue to shrink as JP Morgan Chase and others pare down their fund offerings.

So what?

Besides the obvious economizing offered by fund consolidation within a firm, we are watching the dance of convergence and reorganization orchestrated by an efficiency-minded marketplace. Here is the numeric demonstration that the fund industry is, indeed, becoming one dominated by larger companies.

Let's not forget the shuttered funds...

2000 closed with an estimated 10,725 mutual funds left, so the reduction constituted a mere two percent drop in the number of funds. Furthermore, Wiesenberger's fund count includes all share classes so, for example, the eight market neutral funds shuttered in 2000 represented share classes among four distinct funds.

The table below details fund closings from 2000 and the first quarter of 2001 in various categories, listed from the most liquidations to the least. Categories with less than three closings do not appear in this table.

Fund category liquidated funds total funds in category percent drop
International 43 956 4.5%
Large Cap 35 1670 2.1%
Global 24 701 3.4%
Muni Bonds 15 1570 1.0%
Small Cap 15 777 1.9%
Mid Cap 11 351 3.1%
US Govt Bonds 10 486 2.1%
Corporate High Yield 8 304 2.6%
Market Neutral 8 17 47%
Internet 3 39 7.7%

Market neutral was the big loser -- or was it?

By percentage, market neutral fund liquidations topped the chart. However, various hedging strategies have become popular themes for new funds opening up and often slip into funds that may not end up categorized purely as market neutral. Furthermore, the closed funds appear to suffer as much from flawed marketing and product appeal as they do from flawed strategies. For details on several of the star-crossed funds, see the "Related Stories" section below.

Related Stories:
Is Marketing Important? Mar. 8, 2001
Un(discovering) Absolute Returns, Mar. 23, 2001 

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