The Magic List

“The Holy Grail” is what some people feel they have found when they land a spot in a brokerage company’s mutual fund advisory program, according to the Wall Street Journal. Achieving a spot on such a list for a new or small mutual fund is not an easy task.  But, if they can accomplish it, they can almost guarantee that their fund will have a stream of money consistently coming in, keeping them competitive within the market.

For those who might not know what a mutual fund advisory program is, this is where “clients choose a model asset allocation, and the companies select the funds to build the portfolio,” as explained in the Wall Street Journal article. This program breaks down to an environment where there is a large group of investors all being placed within the same funds and investing large amounts of money into those funds, which have been chosen as models. So, for a fund to be enlisted into these programs, it is a little like hitting the jackpot. But how do you land a coveted spot on the short list?

Securities firms put a lot of research time into a variety of funds in order to create these programs. A fund can be eliminated from the pool for a number of reasons. If they don’t have the correct operational requirements they will be cut on the spot, and then the following questions will be asked: Who is the fund manager? Are they following a specific plan and staying on track? Will they align well with other funds within a portfolio? And the list goes on.

There are two things a fund can have that will help them come out on top after careful consideration   – being small and having a big name associated with it. Small funds are sometimes preferred for investing in small stocks, though there may come a time where these small funds become too large to continue to operate efficiently.  They also have the means to come up with creative solutions more quickly than a large fund would be able to do. And, as we all know, the less people you have to answer to, the quicker a final decision can be made. So in this case, small is good!

For the second point, having a “known” portfolio manager helps a great deal. A known name breaks into the market much more rapidly than a fund managed by a group of newbies. Known names within the industry come with a reputation, and as long as the reputation consists of strong returns, securities firms will look past the fact that the fund itself is new.

Mutual fund advisory programs are a great way for funds to get their start, and funds should make sure to plan accordingly in order to get on the list!

About Maureen Lowe

President and Founder of Financial Technologies Forum, LLC. Editor-In-Chief of FTF News. Entrepreneur, Jersey Girl that recently returned to Jersey, Loves to Bake, Married to a Kiwi, First Time Mom
This entry was posted in Financial Technologies Forum (FTF), Financial Technology, Wall Street and tagged . Bookmark the permalink.

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