We've discussed the problem of correlation among hedge funds, correlation among not only assets and but also "styles," which tends to herd everyone in the same direction. The lack of original ideas is a big performance issue these days for all asset managers.

But when it comes to mutual funds, the correlation problems, regarding portfolio investments, seem worse than ever. People have been talking about the index-ization of the industry for years.

According to Bloomberg, six of the ten largest U.S. stock funds have reported correlations of 0.99 this year. The correlation between the S&P 500 with its member stocks was 0.81 over the 50 days ending July 7 and remained at that elevated level, notes Bloomberg. That's almost twice the historical average of 0.45.

You have to wonder when funds will start differentiating a bit. But it may be the industry is less about stock picking than aggregating bundles of risk.

Some will argue that index funds and portfolios of ETFs make the most sense. In the face of numbers like these, it's hard to argue.

For more:
- here's the article

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