Mutual Fund Market Study
By Tom Dougherty
The mutual fund industry markets itself by the investment philosophy that it is unnecessary to observe the market by brand name. To make matters worse, funds have tried to differentiate (brand) themselves by using independent rating systems like Morningstar. This is akin to differentiating your brand of beer by saying that it is “liquid and sells for XYZ price.”
During the huge run-up to mutual fund investing in the 1990’s, this model seemed effective. The market was running great guns, and everyone’s Morningstar rating showed double digit growth. Some investment experts were actually encouraging investors to compare Morningstar ratings and “trade” funds on an annual basis. As a result of basing the brand value on performance, the market from the inside-out shows that the only choice for the investor is for portfolio diversification between growth and value or domestic and international. Lipper was no better. In each case preference was going to be built around past performance and this led many funds to experience drift. However, the only reason to have a brand is to create margins or increase preference.
In a mutual fund market study, it is clear to see that if your product or service is being purchased as a result of performance, you have no brand and no connection with the customer. No one noticed the dangerously rising tides during the exuberance of the 90s — and eventually found themselves without any brand equity. The result of this lack of security and protection: the flight of investor assets.
If we look at the market from the outside-in (from the perspective of the investor) it is possible to see the market in very different terms. But mutual fund families must begin to position the family of funds and not the individual instruments.
In other words, the brand should reflect the brandface of the segmented target market. One possible way to see the market is from the perspective of investor lifestyle. This perspective shows great opportunity for fund families to define their brand in a way that resonates with investors. It works in two ways. First, it tells the target audience who the family of funds is for, and secondly, it satisfies the need to “make it easy for me.” No brand of mutual fund, with the possible exception of the socially conscious funds, has done this sort of brand segmentation.