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Resist the lure of 'fad funds''Not even Warren Buffett attempts to time markets'By Bina Brown YOUR E-MAIL ALERTS(CNN) -- "Fad funds" have long been a recognizable part of the investment arena. Depending on the theme of the day investors are urged to pour cash into especially formulated funds. Remember the Asian funds in the mid-1990s, resource funds in the early 1990s and technology funds in the late 1990s? In between the big fads have been indexing, socially responsible investing, hedge funds, property trusts, portable alpha and high conviction. A new research report has highlighted the issue of "fad funds" as a gentle reminder to investors that, while investment themes are important, the fund manager holds the real key to success. Independent research house InvestorWeb recently completed its 2006 Global Specialist Sector review in which it ranked funds according to their expertise in the sector, processes and whether they can achieve their investment objectives over the longer term. Out of dozens of global managers it was able to name six funds a "strong buy", most of them focusing on either resources, China or Japan. InvestorWeb recognized that globally, investors have access to an enormous range of well established, well resourced geographical and sector specific funds which essentially give investors specific exposures which can otherwise be difficult to obtain. While many specialist funds have a proven track record, InvestorWeb warns investors to steer clear of specialist "fad funds" that are here today, gone tomorrow. "We are reminded of Asian funds in the mid-1990s, resources funds in the early 1990s and, of course, technology funds in the late 1990s," says InvestorWeb' analyst Jeremy Graham-Higg. "Investors pour cash into these funds when the themes are hot, only to redeem at a loss a short time later." Graham-Higg says that fund managers are partly guilty of facilitating these fads -- they open and heavily market products when the theme is hot, and close products in reaction to poor performance and outflows. "We urge fund managers, advisers and investors to take a long-term view. In our view, well considered investment into these types of funds can assist diversification and provide advisers the opportunity to tailor portfolios and add value over time." "By definition most of these funds will display levels of volatility above broad global equity funds. Investors in these funds should be prepared to absorb the sometimes short-term periods of high volatility. Thus, it is important to use these products as part of a well-constructed portfolio, and to consider them long-term investments," says Graham-Higg. InvestorWeb Research believes investors also need to avoid the temptation of switching between funds to invest in the latest "hot sector." "Inevitably, this strategy will fail as even renowned investors such as Warren Buffett don't attempt to time markets. Instead, investors need to adopt a long term view with specialist funds and be prepared to absorb the periods of volatility," he says. Alex Dunnin, research director with independent ratings agency Rainmaker believes investment people are as "fashion conscious as most 14-year-old schoolgirls". "They are always jumping over themselves to get on board the latest fashion. Ironically, they then complain when they are accused of following a pack," he says. "But they are not so different to other people -- we all want to be part of a gang. The real concern with the fashion-following in investment land is not so much if the managers do it, but rather if the asset consultants do it. "I hope that every asset consultant is an independently minded thought leader -- if they aren't, then they not consultants but sales reps," says Dunnin. 
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