US Mutual Funds Recent Trends and Developments

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1 US Mutual Funds Recent Trends and Developments Susan Olson Senior Counsel International Affairs Investment Company Institute May 18, th ANBIMA Investment Funds Congress

2 US Registered Investment Company Assets Billions of dollars, * Data for mutual funds and ETFs are for March 2011, closed-end funds and UITs are for December Mutual fund data exclude mutual funds that primarily invest in other mutual funds. 2 ETF data include investment companies not registered under the Investment Company Act of Source: Investment Company Institute 1

1 Mutual fund data exclude mutual funds that primarily invest in other mutual funds.

3 Over Two-Thirds of US Investment Company Assets in Long-Term Mutual Funds March 2011 Money Market Funds $2.7 trillion (20%) Closed-End Funds $241 billion (2%) Stock, Bond & Hybrid Funds $9.4 trillion (70%) Exchange-Traded Funds $1.1 trillion (8%) Unit Investment Trusts $51 billion (<1%) Total= $13.5 trillion Source: Investment Company Institute 2

7 trillion (20%) Closed-End Funds $241 billion (2%) Stock, Bond & Hybrid Funds $9.

4 Bulk of US Long-Term Mutual Fund Assets are Invested in Equity Funds March 2011 Bond Funds $2.7 trillion Domestic Equity Funds $4.4 trillion Hybrid Funds $789 billion International Equity Funds $1.6 trillion Source: Investment Company Institute Total= $9.4 trillion 3

4 trillion Hybrid Funds $789 billion International Equity Funds $1.

5 Investment Companies Channel Investment to Stock, Bond, and Money Markets Percentage of total market securities held by investment companies, year-end 2010 Mutual funds Other registered investment companies < U.S. corporate equity U.S. and foreign corporate bonds U.S. Treasury and government agency securities U.S. municipal securities Commercial paper Note: Components may not add to the total because of rounding. Source: Investment Company Institute, Federal Reserve Board, and World Federation of Exchanges 4

corporate equity U.S. and foreign corporate bonds U.S. Treasury and government agency securities U.S. municipal securities Commercial paper Note: Components may not add to the total because of rounding.

6 Total Net New Cash Flow to Mutual Funds Billions of dollars, * * Data through March 31, 2011, not at an annual rate. Source: Investment Company Institute 5

7 What s Happening with US Long-Term Mutual Funds Net new cash flow to stock, hybrid, and bond funds was $228 billion in 2010 and $69 billion through March Domestic stock funds have had four consecutive years of net outflows ( ). Nascent turnaround (?) $16 billion inflow through March International stock funds had an inflow of $59 billion in So far this year, $19 billion inflow. Bond funds saw net inflows of $241 billion in 2010, down from record setting pace in Pace of inflows has slowed further through March 2011 to $17 billion. 6

) $16 billion inflow through March 2011. International stock funds had an inflow of $59 billion in 2010. So far this year, $19 billion inflow.

8 Net New Cash Flows of Stock and Bond Funds Billions of dollars, * * * Data are through March 31, Source: Investment Company Institute 7

159 90 35-28 -9-37 -234 * * Data are through

9 Annual Net New Cash Flow of Mutual Funds by Index vs Actively Managed Billions of dollars, Domestic equity Foreign equity Bond and hybrid Note: Fund of funds are not included. Source: Investment Company Institute 8

10 Flows to Equity Funds Related to Global Stock Price Performance * Billions of dollars Percentage points 80 Total Return on Equities Net New Cash Flow to Equity Funds * * Data are through March 31, The return on equities is measured as the year-over-year change in the MSCI All Country World Total Return Index. 2 Net new cash flow to equity funds is plotted as a six-month moving average. Sources: Investment Company Institute and Morgan Stanley Capital International 9

2011* 60 40 20 * Data are through March 31, 2011.

11 Flows to Bond Funds Related to Bond Returns * Percent of Total Net Assets 3,0 2,5 2,0 1,5 1,0 0,5 0,0-0,5-1,0-1,5-2,0-2,5 Net New Cash Flow to Bond Funds 2 Total Return on Bonds 1 Percentage Points * * Data are through March Year-over-year change in the Citigroup Broad Investment Grade Bond Index 2 Net new cash flow to bond funds plotted as a 3-month moving average of the share of NNCF in previous month assets. The data exclude flows to high-yield bond funds. Sources: Investment Company Institute, Citigroup. 10

12 Willingness to Take Investment Risk by Age Percentage of US households by age of head of household; willingness to take aboveaverage or substantial investment risk Younger than to to or Older Sources: Investment Company Institute tabulations of Federal Reserve Board Survey of Consumer Finances and Investment Company Institute Annual Mutual Fund Shareholder Tracking Survey

49 50 to 64 65 or Older Sources: Investment Company Institute tabulations of Federal Reserve

13 Shareholder Sentiment Edges Up, But Still Remains Low Percentage of mutual fund shareholders familiar with mutual fund companies, The mutual fund industry favorability rating is the percentage of mutual fund shareholders familiar with the fund industry who have a "very" or "somewhat" favorable impression of the industry. 2 The S&P 500 is an index of 500 stocks chosen for market size, liquidity, and industry group representation. Sources: Investment Company Institute and Standard and Poor's (See Bogdan, Sabelhaus, and Schrass, "Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2010, ICI Fundamentals (September 2010)) 12

industry. 2 The S&P 500 is an index of 500 stocks chosen for market size, liquidity, and industry group representation.

14 US Investor Confidence Hasn t Recovered Percentage of fund investors somewhat or very confident that mutual funds can help them meet their investment goals Younger than to to or older Note: Components may not add to total because of rounding. Source: Investment Company Institute (See Bogdan, Sabelhaus, and Schrass, "Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2010, ICI Fundamentals (September 2010)) 13

15 US Households Have Become More Financially Conservative 42% 58% Over the past three years, 58% made at least one of these moves: Increased regular saving; Shifted investments away from stocks (to be more conservative); or Delayed retirement or increased retirement age. Households with financial assets Source: ICI tabulation of GfK OmniTel survey data (November and December 2010) 14

stocks (to be more conservative); or Delayed retirement or increased retirement age.

16 US Shareholders Confidence And Mutual Funds Percentage of all mutual fund shareholders by level of confidence that mutual funds can help them meet their investment goals, Somewhat confident Very confident Note: This question was not included in the survey prior to The question has four choices; the other two possible responses were "not very confident and "not at all confident". Source: Investment Company Institute 15

53 59 55 55 2005 2006 2007 2008 2009 2010 Note: This question was not included in the survey prior to 2005.

17 44 Percent of US Households Owned Mutual Funds in 2010 Millions and percentage of U.S. households owning mutual funds, selected years Percentage of U.S. households Sources: Investment Company Institute and U.S. Census Bureau. See ICI Fundamentals, "Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, September 2010." 16

0 43.9 Sources: Investment Company Institute and U.S. Census Bureau.

18 Key Themes for US Mutual Funds Household saving and investing strengthening Reduced investor risk tolerance is affecting equity and bond fund demand Investor confidence in mutual funds remains good, but growth of indexing is reducing demand for actively managed equity funds Aging Americans will not cause overall fund outflows; some reallocation to bond funds 17

mutual funds remains good, but growth of indexing is reducing demand for actively managed

Investment Company Institute and the Securities Industry Association. Equity Ownership

Investment Company Institute and the Securities Industry Association Equity Ownership in America, 2005 Investment Company Institute and the Securities Industry Association Equity Ownership in America,