Mutual Fund SWOT Analysis

A SWOT analysis can help keep your nest egg in the right place.

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Mutual funds are among the financial products that benefit from conducting a SWOT analysis. By reviewing their strengths, weaknesses, opportunities and threats, an individual investor can be better informed on where to invest their money, and be positioned to shift gears along with the market.


The most critical strength for a mutual fund is its performance. If a fund is outperforming the market, and particularly if it is at the top of its benchmark, that is a big selling point. If the fund is part of a well-established company with a track record of success and a family of high-performing products, that brand name and historical record may also be a strength. A best-in-class research department or methodology that has a track record of picking winners is a huge asset as well. Different financial metrics may be key depending on your investment style and the fund involved: dividend yield may be the key for one investor, total return over a 10-year period for another.


One weakness to look at are your fund’s fees. A high expense ratio is a weakness even if it pays for an active management currently beating the market with its returns. Even in good times, expenses are a drag on investor return, and they will be more difficult to accept if the performance declines. Size can be a weakness as well, since bigger isn’t always better. As a small-cap fund gets bigger, for example, it will have a hard time finding growth opportunities for all of its assets and may have to close or expand outside of its stated objective. Risk may be a weakness for some investors looking for a smaller beta or standard deviation.


It's not enough to look at the current numbers when evaluating prospective mutual funds. You also need to look at the overall market and consider whether the fund is best positioned to take advantage of trends. A lagging fund may offer the best opportunity for growth if the combination of a management change and economic trends prove beneficial. A change in the government regulatory environment not only affects different industries, but the funds that concentrate in those sectors as well.


To some extent, many funds move along with general economic news. Some types of funds do better in a recession while others track well in boom times -- those funds are particularly threatened by a sudden change in the unemployment rate that undermines consumer confidence or a stimulus plan that gets people spending again. In addition, if a fund is dependent on a superstar manager, make sure you have a plan in place if that manager suddenly decides to leave.