A Cyclical Decade for Mutual Funds

A look at a surprising statistic.

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Ignore, for just a second, the recently concluded decade's two bull markets and two recessions. Forget, if even for just an instant, everything that happened throughout the course of the topsy-turvy decade we just emerged from. Because once you filter out all the noise—as preposterous of a task as that may be—something curious happens: By one measure, we're right back where we started in 2000.

[See The Decade's 10 Worst Fund Disasters.]

At the end of 1999, there were 6,702 open-ended funds (excluding money market funds) on the market, according to Morningstar. Fast-forward to the end of 2009, and—somewhat astonishingly—the number is 6,703. In other words, despite all the tumultuous ebbs and flows of the market, the net effect has been an all but invisible change in the number of funds available to the average investor.

This statistic is striking for a number of reasons, but chief among them is the fact that we've heard so much recently about the recession forcing funds to liquidate that it's hard to imagine anything but a sharp downward trend in the number of offerings out there. To be fair, the universe of open-ended funds did decline quite a bit in 2009—there were 7,101 funds at the end of 2008. There's also the fact that the tallies capture net effects—the creation of new funds, in other words, cancels out the closing of old ones. Still, any way you slice it, it looks as if history has come full circle.

So from a purely numerical standpoint, investors shopping for funds these days have just as wide a choice set as they did 10 years ago. But what about the quality of the selection? In that regard, history hasn't been quite so cyclical. Notably, over the past several years, funds have become quite a bit more complicated: Whether you're looking for leverage, long-short strategies, or exotic holdings, you're a lot more likely to find complex products now than you were at the turn of the decade. Is that a good thing? That's for you to decide.