Shareholders should be careful before assuming that mutual fund mergers will necessarily translate into higher cost savings, some research analysts told The Associated Press.
While the recent deals like J.P. Morgan Chase & Co.'s $58 billion purchase of Bank One Corp. and Bank of America Corp.'s $47 billion acquisition of FleetBoston Financial Corp. created powerhouses of mutual fund lineups, Todd Trubey, an analyst with Morningstar, says that research shows that merged fund companies do not get rid of poor funds. Nor do they pass down savings to investors.
Experts say that when fund families merge, investors should look first and foremost at who's running the fund. "If your fund is being merged into another and your guy has been fired or whatever, you have to evaluate that fund from scratch and make sure it still fits in with your portfolio," says Neil Donahoe, chief investment officer of SYM Financial Advisors, a wealth management firm based in Warsaw, Ind. "The track record [of the fund] is essentially useless at that point. It's like starting over."
Donahoe notes that the motivation behind a merger transaction is important. "I've seen mergers where a small shop gets merged into a larger shop, but if it's still the same guy running a larger block of money, I don't get so concerned. I do get concerned when a fund group gets sold to a larger group and everybody leaves within two years," Donahoe says.