The asset management industry has grown rapidly, with new funds launching at a pace that can overwhelm even the most attentive investors. With so many choices, the real challenge is no longer finding a fund—it’s figuring out which ones actually deserve your attention.
Fortunately, you don’t need specialised knowledge or inside access to make informed decisions. Most of what matters is publicly available, if you know what to look for. Here are five practical steps to help you evaluate whether a new fund is truly worth consideration.
1. Assess the edge of the product
Many new funds claim to be unique, but in reality, few are. Asset classes like Asia ex-Japan equities have become saturated and dominated by a few established funds which control most assets. Before committing to a new fund, review its offering documents and compare its strategy with those that already exist. Does it genuinely offer something different, whether in philosophy, process, or portfolio construction? Tools from Morningstar.com can help you assess whether the fund’s approach stands out or simply mimics existing options.
In crowded asset classes where active funds struggle to outperform, for example, a low-cost passive fund might be a better alternative. Passive strategies often fare better in efficient markets like US large-cap equities, while active managers have more room to add value in less efficient markets like in China or India.
2. Substance over hype
Investors are often tempted by funds chasing the latest trends, but this approach tends to disappoint. Extra caution is warranted when investing in thematic funds, especially those jumping on what’s currently popular. Morningstar studies have found that thematic funds often fail to beat a broad global equity benchmark and investors compound this underperformance with poorly timed investments. Instead, you’re better off focusing on whether the fund serves a meaningful role in your portfolio and aligns with your long-term financial goals.
Before investing, ask whether the theme is supported by lasting drivers, like demographic shifts or regulatory changes, or if it’s riding a short-term wave. Sometimes, you may even find there are existing funds with more diversified portfolios providing exposure to the same themes.
See also: Investing with clarity: Lessons from the past, opportunities for the future
3. Assess the investment team's expertise
A new fund may not have a track record, but its managers almost certainly do. Look up the portfolio manager’s biography, usually available on the asset manager’s website, and their management history via platforms like Morningstar. Prioritise managers who have experience in the same asset class or investment style, and investigate the manager’s previous funds for evidence of long-term, consistent performance. It’s worth Googling the manager name, too, to look for signs of clear communication about their investment philosophy. A strong, relevant track record is a helpful indicator of how a new fund is likely to be managed.
4. Assess how the portfolio will be built
Even if a new fund hasn’t published its full holdings, its offering documents will outline its investment universe, strategy, and risk profile. Look for clues about diversification: Will the fund hold many securities, or is it concentrated in a few ideas? Is it taking on extra risk than the name might suggest? For instance, some core fixed income funds might invest a substantial portion of assets in high-yield bonds.
Neither concentrated nor diversified portfolios are inherently better. The choice depends on your risk tolerance. Use the fund’s documents to set realistic expectations about potential returns and volatility.
See also: Is the 60/40 portfolio still relevant today?
5. Low costs lead to a greater likelihood of long-term success
Fees are one of the most important predictors of long-term returns. Lower-cost funds tend to survive longer and outperform pricier peers. Scrutinise all expenses and make sure you understand how fees are calculated. Performance fees, for example, can significantly erode gains depending on how they’re implemented.
Whenever possible, prioritise funds with competitive and transparent fee structures. Every dollar spent on fees is a dollar not compounding for you.
Conclusion
New funds are often marketed as innovative products, but their lack of track record should prompt careful scrutiny, not impulse decisions. By focusing on what matters - differentiation, substance, manager experience, portfolio structure, and costs - you can use publicly available information to make smarter choices.
Hunter Beaudoin is analyst, manager research, at Morningstar
