Insight July 2005 Monthly Update

“Performance drives mutual fund sales and redemptions, right? This issue of Insight takes a look at that long-held belief and updates the fund performance study we published in February 2003. Many funds were still reeling from the ravages of the bear market back then. This time there’s good news: most asset classes are positive in terms of recent investment performance. Overall, we have found that performance is increasingly important, especially when a fund has an established record of delivering the goods. But returns are not enough to drive sales up and redemptions down. Being in a strong—indeed, hot—asset class trumps all. The sponsor’s distribution, sales and marketing strategies can also make a big difference in buoying weaker performers and in preventing strong funds from achieving their potential. In other words, performance helps, but is unlikely to guarantee sales success in an industry where product differentiation is becoming more and more difficult.”