The mutual fund industry has a problem
- October 5th, 2011
The mutual fund industry has a problem. Nobody is actively engaged with mutual funds anymore. Remember when people used to care who ran the Fidelity Magellan Fund? There even used to be a entire magazine devoted to mutual funds. No more. That may be due in part to the rise of ETFs as an alternative. It may also be a general disgust with investors for the stock market. In any event does not seem that the mutual fund industry has yet come to terms with this issue.
That trend line reflects an industry that has lost the public’s attention. If you’ve wondered how alienated the public is, you could look at fund flows –much of which is captive money – or you could look at a direct measure of public engagement. The combination of scandal, cupidity, ineptitude and turmoil – some abetted by the industry – may have punched an irreparable hole in industry’s prospects…
The problem of Alarming Funds and the professionals who sustain them isn’t merely a problem for their shareholders. It’s a problem for an entire industry and for the essential discipline which that industry must support. Americans must save and invest, but the sort of idiocy detailed in our next story erodes the chance that will ever happen.
One response the mutual fund industry has is to invade the world of exchange traded funds with actively managed ETFs. It remains to be seen whether actively managed ETFs will catch on in a big way with the public. Even if successful this would represent a drop in the bucket for the mutual fund industry.
The past decade has been characterized by some as a lost decade for the economy, the stock market and now the mutual fund industry. The 99% of investors who don’t want to trade could benefit from a smarter, cheaper, more innovative mutual fund industry because individual investors often invest through IRAs and 401(k) plans where mutual funds still dominate. However absent a new rip-roaring bull market it is difficult to see how the mutual fund industry re-engages with its many potential customers.
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- Tuesday links: knowledge alone
- To bond ETF or not: an excerpt from Rational Expectations by William Bernstein
- Monday links: excessive valuations
- Sunday links: paralyzed with fear
- Top clicks this week on Abnormal Returns
- Saturday links: ripe for disruption
- Friday links: investor class attentions
- Thursday links: doing something different
- Wednesday links: tenacious independence
- Tuesday links: information filters