| With tens of thousands of funds available and | | | | to vote and, in general, the fund being |
| hundreds of fund families, it is fully | | | | acquired is going to a better place. |
| expected that mutual funds will merge fairly | | | | |
| often. Unlike many non-investment products, | | | | What to Do if Your Mutual Fund is Merging Any |
| mutual funds live and die by their | | | | time a merger is announced for a fund you own |
| performance, plus the investing world profits | | | | (as an aquirer or aquiree), it is time to |
| off efficiencies—where even a tenth of | | | | re-evaluate that fund. |
| a percent can make a big difference. Even | | | | |
| with those factors in mind, you should be | | | | You must understand the similarities or |
| concerned about any fund you own that is | | | | differences between the two funds that are |
| merging. | | | | merging or your portfolio may be thrown off. |
| | | | |
| Why Mutual Funds Merge There are many | | | | Look out for dissimilar strategies. If you |
| different reasons for fund mergers. Often | | | | own a Japan fund, for example, and it is |
| they are due to fund company mergers or | | | | being merged into a Worldwide fund, your fund |
| buy-outs. Other times a fund may merge to | | | | may now own stocks in countries other than |
| cover up past performance, to make up for low | | | | Japan, including domestic stocks. Not only |
| assets or are no longer the flavor of the | | | | will it throw your portfolio off, but the |
| week. | | | | reason for the merge may be questionnable. |
| | | | Are they trying to cover up poor stock |
| In 2005, over 200 funds were merged (130 | | | | picking in Japan? Even if the funds merging |
| funds merged in 2004). Mutual fund companies | | | | are similar, will there be changes in risk? |
| would have you believe fund mergers create | | | | Will the fund become more or less |
| economies of scale, providing cost savings on | | | | conservative than before? Does this affect |
| operational activities like prospectus | | | | your overall portfolio? If the merging funds |
| printing and mailing, audits and marketing. | | | | are bond funds, you should pay special |
| | | | attention to taxes. Will the new fund alter |
| In some respects, it is true, but that | | | | your tax situation? As mentioned in "When to |
| doesn't explain why in 2001 over 530 mutual | | | | Sell a Mutual Fund," will the combined fund |
| funds merged (think dot-com crash, and poor | | | | size be a problem? Often when funds get too |
| performance). Removing bad apples seems to be | | | | large (especially small cap funds), they lose |
| a more common reason to merge funds. When two | | | | their nimbleness and have difficulty finding |
| funds merge, the only performance record that | | | | the stocks they need for such a large asset |
| remains is the fund considered to be the | | | | base. Also pay attention to fishy fund merges |
| acquirer. | | | | involving size. For example, if you see a |
| | | | $500 million fund merging with a $20 million |
| Though mergers require shareholder approval, | | | | dollar fund, but the $20 million fund will be |
| it is rare for shareholders to vote against | | | | the surviving fund, there is no question |
| the merge. This is because only the | | | | something fishy is going on here. |
| shareholders of the fund being acquired get | | | | |