Skip to main content

Mutual Funds: The New Conservatism of '05

The latest equity funds covered by Ratings are now three years old. But when they launched in September 2005, they were a fresh breath of sensibility.

For more coverage from Ratings team, check out Ratings section.

Before Ratings can rate a fund, it needs three years of data and research to back up the grade. So the latest additions to our funds coverage, some 50 equity funds we added in September, reflect those investment vehicles that debuted in September 2005.

The funds that launched that month are notable for the seachange they seemed to represent at the time. Still smarting from the late-trading and market-timing scandals but in the midst or a brisk recovery from the 2000-02 bear market, it seems the mutual fund industry -- against all expectations -- decided to get a bit of religion three years ago.

Largely absent from the accompanying table of the 50 equity funds born in September of 2005 are offerings of the "hot concept" variety that populated the industry's creations from the late 1990s. The list represents the latest open-end equity funds to be graded by Ratings. Three years of history are necessary for the review process.

Perusal of the list reveals fund names containing relatively subdued connotations such as "retirement," "value," "lifetime," "core," "disciplined," "hedged" and "real return." Missing are the shoot-for-the-moon high-growth handles reminiscent of a few years earlier.

Whereas the dominant marketing strategy of many stock funds in the late-1990s aimed at grabbing the "hot money" with market-eclipsing returns, the adjoining table seems to indicate by 2005 the objective had matured to a mission of acquiring investor assets by deliberately positioning funds for long-term, steady appreciation. If this indeed has become a permanent trend in the industry's approach to serving investors, then, at long last, chalk one up for the mutual fund world.

An indication that fund firms might be turning the corner and looking beyond the most recent quarterly performance numbers is the dominance of "target maturity" offerings in the table. A total of 16 funds from the AllianceBernstein Retirement Strategy, Hartford Target Retirement and MFS Lifetime groupings populate the list.

"Target" funds tend to be conservative vehicles for individuals with investment plans extending well into the future. They typically start out heavily weighted on the equity side and then gravitate over the years to a tilt towards fixed income. For example, the

AllianceBernstein 2045 Retirement Strategy Fund


, which can tolerate volatility because of its distant target date, contains


(GOOG) - Get Free Report



(AAPL) - Get Free Report


Exxon Mobil

(XOM) - Get Free Report

. Versions of the series with close target dates are more heavily weighted with Treasury notes.


Hartford Target Retirement 2030 Fund

(MLTAX) - Get Free Report

invests in other Hartford portfolios that expose holders to blue-chip stocks such as

General Electric

(GE) - Get Free Report



(IBM) - Get Free Report



(BA) - Get Free Report


Goldman Sachs

(GS) - Get Free Report

. Versions of the series with closer target dates edge their portfolio mixes more toward fixed income positions.

Underlying companies held by portfolios in the

MFS Lifetime 2040 Fund




(T) - Get Free Report


Metropolitan Life Insurance

(MET) - Get Free Report

. Like the other target sets, MFS Lifetime series with closer target dates invest more in bonds.

The evidence in the nearby list is still probably too circumstantial to indicate that mutual fund management firms are edging toward a path of serving that true needs of the public rather than attracting the transitory assets of trend followers and momentum investors. But it seems to indicate that lat least three years ago, they began taking steps in the right direction.

Below is a table outlining the 50 equity funds we just added to our rating pool. They are listed alphabetically.

Richard Widows is a senior financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.