5 tips for evaluating new investment funds

A new report from a manager research team aims to help investors weigh up new fund offerings. Since 2000, over 7000 new funds have launched in Australia and New Zealand, with varying levels of success. With this many new products touting their wares, investors need a way to evaluate them without falling victim to slick marketing.

1. Seek a differentiated offering

Investors that choose active funds stump up higher fees for the possibility of outperformance versus the benchmark. But how can they determine the likelihood of outperformance for new funds that don’t have a track record? The report encourages investors to weigh whether the new fund offers a genuine point of difference versus what’s already available. Ask yourself why you would invest in a fund that is doing something very similar to established funds in its category, only without a track record of results. Investors can also look at how other strategies in a category have performed over time. If most funds in a category have struggled to beat their benchmark, it may suggest that the segment has become more efficient, making it harder for active strategies to stand out. In such cases, a low-cost passive fund could be more attractive.

2. Put your long-term goals over short-term hype

The reality is that most investors and most investment products have different objectives. The goal of many, if not most, funds is to attract the most assets and generate as much fees as possible. The easiest way for them to do this is to launch products with strategies that are currently in vogue. Instead of falling for the latest hype, fund investors should try to remain focused on their long-term goals. For example, broad-based equity funds are often the best for goals related to long-term capital growth, while income-oriented goals are often better served through fixed income or dividend-focused equity funds. This isn’t as exciting as investing in the asset class du jour, but that might be the point. Very niche fund offerings built around hot trends tend to falter when the initial excitement fades. Data shows that a significant number of thematic funds that were opened in the past 15 years have since shut down, often due to poor performance.

3. Look for relevant experience and consistency

An investment fund is only going to perform as well as the people running it. As a result, weighing up the experience and investing approach of your potential fund manager is an important step in any evaluation. Most fund managers will have managed other funds beforehand. Investors should seek clear domain expertise, not just in the fund’s asset class or category, but in managing money towards similar investment objectives as those targeted by the new fund. It is also important to get a feel for how a manager thinks about investing and whether their past promises and actions match up.

4. Get a feel for how the portfolio will be run

Having a clear idea of how the portfolio is likely to be managed is vital in having the right expectations. A new fund’s Product Disclosure Statement should signal whether it will be concentrated or diversified, how frequently holdings are likely to be traded, and how much flexibility the manager will have. For instance, an equities manager might have limits on how much cash can be held or in which regions they can own shares. While there are no right or wrong answers here, it is vital to know what you are signing up for. A highly concentrated approach could increase the likelihood of a fund posting more volatile returns and delivering results that differ significantly from the benchmark.

5. Don’t forget the impact of fees

Investors are often sold on the quality of insight and investing prowess that a fund’s investment team can bring to the table. While this can be true in some cases, there is no denying that higher fees raise the hurdle for a good total return. After all, they come straight out of the total return that an investor receives on their investment. Research has consistently shown that low-fee options have higher success rates and survival rates compared to higher-priced options in most fund categories. The key message for investors is to be reluctant to sign up for high fees relative to other options in the asset class. They should only be willing to do so if the fund offers something genuinely different with a reasonable chance of success.

Source: Morningstar Australia. 5 tips for evaluating new investment funds by Joseph Taylor, 18 August 2025.

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The information on this website is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making an investment decision in relation to a financial product.