Thoughts from the Frontline

The Endgame For Mutual Funds

By John Mauldin

July 30, 2004

The Endgame For Mutual Funds
The Best Place To Be Until Now
The ETF Revolution
A Few Extra Thoughts on Mutual Funds

This week we are going to look at one aspect of the future of investing. A few weeks ago, I was with good friend Doug Fabian in LA. I spent a session or two on his weekend radio show and then we went out to dinner. Not surprisingly, we began to compare notes on investing. While I generally spend my time focused on the hedge fund world, Doug is a true expert on mutual funds.

I wrote in my book that I think the day will come when hedge funds will be available to the public and as an industry will be as large as or larger than mutual funds. Doug, however, looks at a different end of the investing spectrum. He thinks the world of mutual funds will shrink for entirely different reasons. I found his thinking quite interesting and asked him to do an article so I could share it with you while I am out on vacation. I will be back next week, but I am glad to be able to share these thoughts from Doug.

The Endgame For Mutual Funds

By Doug Fabian, Editor, Successful Investing

"The Britain that is going to be forged in the white heat of this revolution will be no place for restrictive practices or outdated methods on either side of industry."
---Prime Minister Harold Wilson

History is replete with examples of good ideas that have outlived their usefulness. For example, the horse and buggy, the homing pigeon and the hourglass are…

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PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.

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