The Motley Fool Opens a Mutual Fund…Why?

  • Posted by
  • on July 5th, 2009

I received my daily email pitch from The Motley Fool on July 4th, but this time it was for something new:

‘The Independence Fund’ – A Mutual Fund for Motely Fool’s.

A bunch of questions come to mind:

1. Why now?

2. Why ever?

I have posed the question to a few trusted sources and the general consensus is:

Its a bad idea. It won’t work. They should stick to what they do because its hard to disprove.

There is a very good reason Cramer does not run a mutual fund. No matter how much we try and analyze Cramer and Motley Fool returns…you can’t pin it down.

That will change now.

The Gardner’s are smart dudes no doubt and have 200,000 subscribers so SHOULD be PRINTING money. They get 4 million uniques a month to their website. I know this because that information is in their cold e-mail pitch to me. It seems they are betting a big part of the franchise on now beating the S&P.

Here is some information on their new fund (from their e-mail to me):

For one thing, Motley Fool Independence Fund is a no-load fund. That means you never pay an up-front sales charge or commission to invest. You don’t pay so-called 12b-1 fees to help us market the fund, either. Of course, you will pay for the fund’s operating expenses, which are estimated to equal 2.30% of the fund’s assets over the first year of operations. However, the fund’s investment advisor will waive its fees or reimburse fund expenses to keep the annual expense ratio at 1.35% until at least March 31, 2010.

Also, to keep the fund’s expenses low, we discourage small accounts and short-term trading by assessing a $24 annual fee on accounts of less than $10,000 in value, as well as a 2.00% redemption fee on shares redeemed within 90 days of purchase.

And unlike too many U.S. mutual funds, which typically hold a stock for less than one year, we intend to be long-term, buy-and-hold investors at heart. And there’s one more thing …
Did we mention we get paid more for
beating the market?

And when we don’t outperform our benchmark, we make less. That’s because we’ve opted for an unusual compensation model that allows our fees to increase or decrease depending on the fund’s performance.

In the industry, we call this a “fulcrum fee” structure. You can learn more about how it works by reading the Motley Fool Independence Fund’s prospectus.

This unusual component of our fee structure gives your manager an incentive to earn the highest possible return relative to the market, not merely pump up the fund’s assets the way most other funds do.

Just as important, your portfolio manager, Bill Mann, is a meaningful shareholder in the fund. He’s investing right along with you. And here’s something else: The Motley Fool has $1 million of its own money invested in Motley Fool Independence Fund.

So, you see, our interests really are aligned with yours, in more ways than one.

With ad sales down and subscribers believing that all content on the web should be free, The Motley Fool has had to go somewhere they never really wanted too…shlocking mutual funds.

To me, it is dangerous way to leverage their 200,000 strong subscriber base. Long term, it’s a lose/lose decision. The subscribers invest, it underperforms and they cancel their subscription. Of course, it could blow away the averages as well. If so…they get bragging rights, something I though Motley Fool never cared about.

Tough Times are making leaders do some strange things.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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