Despite the Sept. 11 terrorist attacks, the resulting drop in the stock market and the pessimistic short-term economic outlook, several fund companies have gone ahead with launching brand new mutual funds.
AIM Management, American Express Financial Corp., Bear Stearns Asset Management, Berger Funds, Delaware Investments and Seligman Advisors have all launched new funds within three weeks of the attacks that shocked the nation and caused significant turmoil within the financial markets.
These new funds debut at a time when the volume of new funds brought to market has fallen off sharply from last year. Through Oct. 1 of this year, only 85 new funds have launched, as compared to 313 over the same period in 2000 and 468 new funds launched in all of 2000, according to Morningstar.
Despite launching new funds, some executives have conceded that they had considered whether or not to postpone the fund launch in the wake of the attacks. Others significantly altered their marketing plans, while at least one other firm pushed back its new fund launches, but only by a few days.
Deciding to Delay Launch
On Sept. 28, just 17 days after the attacks, American Express launched two new international funds under the AXP Partners banner. The AXP Partners International Aggressive Growth Fund and the AXP Partners International Select Value Fund became the fifth and sixth funds to be added to the collection of subadvised funds, which American Express began offering earlier this year.
The funds were supposed to have officially launched on Sept. 20, said American Express Spokesman Paul Johnson. But after the attacks, and the resulting closing of the stock markets for four days, American Express changed its priorities. It delayed the fund launch for eight days, and refocused on technology issues related to getting the existing American Express funds' pricing and systems back on line for when the market would eventually reopen, he said.
American Express began pricing the initial securities held in the two new funds when the stock market reopened on Sept. 17. But the funds were not officially launched until Sept. 28. "That pushed things back in the pipeline a little," Johnson said, noting that plans to launch the two international funds had begun back in June.
According to Johnson, despite the turmoil, the impetus for the fund launches hasn't changed. American Express, which sells financial services including the firm's proprietary mutual funds to clients through its network of 11,000 financial advisors, simply wanted to fill out its product line and make the two new offerings available.
"When our financial advisers are working with clients, we want to have a compelling option in each area that they are placing funds," Johnson said. International funds, which have historically had a low correlation to U.S. markets, were that much more appealing in light of the lower stock market, he said. "Despite feeling the effects of the attacks, clients still need to plan for the future and think about long-term financial planning."
A Kinder, Gentler Debut
Bear Stearns was right on schedule for its Oct. 1 launch of its new S&P STARS Opportunity Portfolio. When the terrorist attacks took place, firm executives met briefly to consider delaying the fund launch. But that idea was quickly dispelled, said Barry Sommers, director of the group's mutual funds.
The new fund invests in small- to mid-cap stocks that are selected through a combination of stock picks suggested by Standard & Poor's of New York and Bear Stearns analysis. Bear Stearns first hatched this one-of-a-kind investment research partnership with S&P six years ago when it rolled out the original S&P Stars Portfolio which invests in large-cap stocks.
"It made sense, for investment reasons, to be launching this kind of fund. It's a great time to be in small-cap companies," Sommers said. "The timing to come out with a new portfolio like this has never been better. But we do expect that the events of Sept. 11 will affect the sales and the growth of the fund."
But while the official fund launch took place as planned, pre-launch discussions with brokers who sell the Bear Stearns funds were cancelled or delayed in the wake of the tragedies, Sommers noted.
Conference calls scheduled for a few days after the attacks were cancelled, and several later meetings were postponed. "It's tough to go on with business as usual. Lots of people didn't have the mindset to go into offices and talk about this investment," he said. Still, brokers need to talk about good investments with clients, now more than ever, he added.
Scrapping a Flashy Roll-out
Like other mutual fund advisors, Berger Funds also decided not to postpone or shelve the new Berger Large Cap Value Fund that debuted Oct. 1. The fund had been in the works for about a year, said Berger Spokeswoman Sally Carleton. In fact, the fund's launch had already been postponed once, prior to Sept. 11, in order for Berger to get things in order, she said.
The fund was always scheduled to have a "soft launch" with no real advertising, Carleton said. But Berger had planned to introduce the new fund to its direct shareholders as well as the investors who bought Berger funds through the fund supermarkets of Charles Schwab and Fidelity with flashy direct-mailed marketing materials and an attention-getting message inserted into investors' Sept. 30 quarterly account statements. In the aftermath of the attacks and the somber mood that gripped the nation, Berger's marketing plans were scrapped, she said.
"We didn't feel that doing exciting marketing copy was appropriate. But shareholders still want to know if a new fund is available," Carleton said. Instead, Berger opted for a more plain message on account statements that simply mentions the availability of the new fund and states its investment objective.