Fund Mangers to Public: We don't want your money

BBC News photo

An interesting story today from the WSJ ("Investors Go on a Learning Curve") highlights efforts by traditionally "hot" fund companies to encourage discretion and discourage performance chasing by investors. While that is being hailed as a good development, and it may well turn out to be, consider this quote from the VP of retail marketing at Janus:

"There's nothing worse than investors getting a fund that's way too hot...and have them be unhappy after three months...Chasing performance isn't good for anyone -- not for the fund companies, not for investors, and it's not good for the funds."

There are many ways to interpret this statement, none of which are positive (nothing against Janus in particular, the statement just happened to come from their VP). Are we to believe then that the investor chasing the latest trends, making trade after trade and racking up trading fees along the way is bad for business? Is this finally an admission that as funds become bloated they grow so large as to be unwieldly, meaning that they will accept less money per fund in the future?
The predictable response here is that over the long run the trader that gets burned by chasing performance is bad for business, but that to me is more indicative of a problem with fund design and less an indictment of investor behavior.
The decision to do away with an established business strategy in favor of adopting someone else's is questionable at best. Announcing that the goal is to no longer chase returns while modeling new funds after those that have coincidentally outperformed of late is not only somewhat contradictory, it also sends the wrong message to investors, especially those whose business you are looking for. Does the market really need more funds that mimic the returns of other funds? Should new products really be geared towards chasing returns of more "stable" areas of the market, and dilute those returns even further?
The whole statement reeks of confusion, and is another reason to be skeptical of marketing statements regarding any type of investment. Period.

The message is clear: Buy a share of a fund that is designed to underperform and sit on it in perpetuity.