Load funds on the rise as companies try to woo skittish investors

NEW YORK -- There's no doubt that mutual fund investors, discouraged by the stock market's two consecutive years of decline, don't feel as bold about selecting investments as they did during the bull market. They're increasingly seeking the advice of advisers and brokers.

Fund families are well aware of the trend. And some, looking for ways to make their investments more available and to increase sales, are shifting to what are called load funds, those sold through brokers for a fee, and away from no-load funds, which investors purchase on their own from a fund company.

Among the fund families switching to loads is Invesco Funds Group, which makes the change on April 1. Two months later, Scudder Investments will convert its funds to load status.

"People are just not as self-confident to go and do it themselves. ... Until the end of 1999, investors thought they were geniuses, and so they were buying no-loads," said Don Cassidy, senior research director at Lipper Inc., a provider of fund data.

Now, he added, "People have been going back to buying funds with assistance from brokers or planners and those come with loads. Fund companies are noticing the trend and want to capture every possible channel of distribution that they can."

In converting to loads, Invesco and Scudder will join Dreyfus Founders and Credit Suisse Warburg Pincus, other fund companies that have recently made the switch.

Financial experts say investors should keep in mind there's little difference in the performance of load and no-load funds. It's also important to note that all funds have management fees, whether they have a sales charge or not.

According to Lipper, no-load funds have produced a positive year-to-date return of 0.6 percent, while load funds have a positive return of 0.2 percent. In the past five years, no-loads have posted a positive return of 7.5 percent, while load funds have a positive return of 6.3 percent.

Still, there are proponents of both loads and no-loads. Those in favor of load funds say investors benefit from the advice of a broker.

Meanwhile, advocates of no-load funds say investors can buy the same quality of funds without paying a sales fee. They boast of the low fees and no-loads of The Vanguard Group, whose Vanguard 500 Index fund is the biggest fund in the world with $90 billion in assets.

"If your expense on a load fund is 3 percent a year, and the long-term return on equities historically is 12 percent, you have paid one-fourth of your total return in overhead," said Sheldon Jacobs, editor and publisher of The No-Load Investor newsletter.

Loads can also vary based on the amount invested and how long the investment is held. According to Lipper, the average maximum front load -- charged when the investor buys the fund -- is 4.3 percent, and the average maximum back-load -- charged when the investor sells the fund -- 3.0 percent.

While the market's two-year fall offers some explanation for fund companies converting to loads, the industry has been moving in that direction for years.

Load funds account for 83 percent of stock funds, according to Lipper. By Lipper's count, there are 8,500 load funds, and 1,747 no-load funds.

Another factor that has favored load funds is the nation's swelling number of mutual fund investors, which more than doubled in the 1990s to reach 50.6 million in 2000, according to the Investment Company Institute. With fewer new investors out there, fund companies have had to turn to sales forces to woo investors away from competitors.

And, without the backing of sales teams, it's tougher for many no-load funds -- aside from big names like Vanguard and Janus -- to get noticed, particularly in a down market, said Scott Cooley, editor of Morningstar Mutual Funds, a newsletter published by the Chicago investment information firm.

"It's hard to get investors' attention," Cooley said. "It is harder for a no-load family to get distribution, unless it has a selling point like low cost like Vanguard or extremely good return numbers as Janus had up until early 2000."