158 mutual funds died in 2011, 211 merged away

— -- The mutual fund industry launched 586 funds last year, slightly fewer than 2010 — but it also sent 369 funds into oblivion.

The 2007-09 bear market still casts a long shadow over the fund industry: Many of the newest funds are designed to reduce stock market risk, says Geoff Bobroff, a East Greenwich, R.I., mutual fund consultant.

For example, the industry started dozens of funds that use blends of different investments — stocks, bonds and cash — to reduce stock market risk.

Consider the Diversified Risk Parity fund, which filed its prospectus in April. According to its prospectus, the fund "seeks capital appreciation with lower volatility than broad equity markets."

The fund invests in a mix of assets, including commodity exchange traded funds (EFTs) and derivatives — complex contracts whose value depends on an underlying index or interest rate.

Commodity funds, too, are popular new rollouts. IPath, which has a penchant for catchy ticker symbols, rolled out ETFs that invest in precious metals (ticker: BLNG), agriculture (DIRT), aluminum (FOIL), coffee (CAFE) and grains (WEET).

Another theme in new funds: highly specialized exchange traded funds, such as the PowerShares DB 3x Inverse Japanese Government Bond Futures ETN (JGBT). The exchange traded note promises to rise three times as much as Japanese government bond futures rise, and vice versa.

"They're trying to slice the bologna thinner and thinner, and I don't think anyone will benefit from that," says Bert Greenwald, a Philadelphia fund consultant.

The fund industry liquidated 158 funds last year, according to Lipper, which tracks the funds. When a fund liquidates, it sells its investments and distributes the proceeds to investors, minus fees.

Fund companies liquidated 14 money market funds last year. Because yields are so low, funds often waive fees to keep share prices at a constant $1. In effect, they become loss leaders. International funds also took a licking, as investors fled poor returns from international markets.

Fund companies often merge poorly performing funds into larger, more successful ones, and 211 funds vanished through mergers last year.

What happens to the records of liquidated and merged funds? They just vanish, making the overall record for funds look better than it really is.