Investors should never use past performance of mutual funds as their only guide to choosing a fund, the nation's top securities regulator said Monday.
"Chasing fund performance is often the quickest way to hurt your mutual fund returns," said Arthur Levitt, chairman of the Securities and Exchange Commission. "Investors should comparison-shop for funds that best match their long-term financial goals and tolerance for risk."
A record 177 mutual funds reported returns of 100 percent or higher last year, according to an industry survey. Before 1999, no more than six funds had doubled investors' money in any given year.
But high-performing funds often fail to repeat their gains, and investors who switch in and out of funds typically receive significantly lower returns than those realized by people who buy and hold funds, the SEC said.
In addition to looking at performance, the SEC advises investors to examine: the fund's sales charges, fees and expenses; the fund's potential impact on taxes; the age and size of the fund; the fund's investment risks and whether its performance has varied widely over time; and recent changes in the fund's operations.
A 1 percent higher annual fee will reduce a fund investor's ending balance by 18 percent after 20 years, according to the SEC.
Your pet would approve
Are you concerned that companies you invested in might test drugs or cosmetics on animals?
If so, here's a mutual fund for you: Salomon Brothers' Humane Equity Fund (800-725-6666), which invests exclusively in companies that pass an animal-friendly screening process established by the Humane Society of the United States.
Companies that don't make the cut include those that use animals in their products, test products on animals or make hunting and trapping equipment.
The Humane Society is supplying the fund's initial seed money -- $8 million. "We hope it will meet the $100 million (asset) mark," said Thomas Waite, the society's chief financial officer and treasurer.
New York Daily News
Merrill to open Internet fund
Merrill Lynch & Co. has filed with the Securities and Exchange Commission to open a new fund focused on Internet companies to tap the hottest-selling market segment.
The fund, to be called the Internet Strategies Fund (800-637-3863), will be run by a team led by Paul Meeks, manager of the firm's Global Technology Fund. The new fund is likely to open in March.
Merrill's stock pickers will invest primarily in "equity securities of issuers that managers think will use the Internet as part of their business strategy," said a spokesman.
Vanguard site adds tax calculator
Until last week, investors needed a sharp pencil, a lot of time, and an even sharper knowledge of taxes to figure out exactly how much of their mutual-fund returns they were losing to Uncle Sam.
Now, investors in the funds of Vanguard Group can see -- to the penny -- how big a bite taxes take from returns. Vanguard has introduced a calculator on its Web site that lets users determine the before- and after-tax returns for one, five and 10 years for 78 of its 124 funds.
The new calculator follows Vanguard's October announcement that it would publish after-tax returns in the annual reports of its stock and balanced funds, the first fund company to do so. But the numbers in the reports are generic and assume everyone is in the highest bracket, taxed at 39.6 percent.
The Web version of the calculator lets investors tailor the information to their personal situations, choosing the correct tax bracket and taking into account state and local taxes and various holding periods.
To find the calculator, go to Vanguard's Web site at www.vanguard.com, click on the "funds" tab, and then click on "after-tax returns calculator."