Lewis Braham
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Who needs 7,770 mutual funds?

Posted Feb 7th 2009 6:40PM by Lewis Braham (RSS feed)
Filed under: Rants and Raves, Mutual Funds, Financial Crisis

Once there were two mutual funds. Now look how many. So goes capitalism. Create a product people need or, through a massive advertising campaign, suddenly discover they want, make a ton of money off that product and suddenly you have imitators. Suddenly, there are three mutual funds, four, five until today there are over 7,000. The mutual fund like everything else "free market" capitalism produces has become a commodity, bought and sold like grain.

How do you make money off a commodity? Either become the low-cost producer or find a way to differentiate yourself. The commoditization process always means profit margins get squeezed because if you won't offer your mutual funds for a low price someone down the block or in India or China will. And then you will be forced out of business. The birth of Vanguard's low-cost S&P 500 index fund in 1976 marked the ultimate commoditizing moment in the history of mutual funds.

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