The Markets April 30, 2010

Advisers Number One Source for Mutual Funds outside of Retirement Plans

Eighty percent of households that owned funds outside a workplace retirement plan held funds purchased through a professional adviser, according to the 2010 Investment Company Fact Book released by the Investment Company Institute (ICI).
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ICI explained professional advisers may include full-service brokers, discount brokers, independent advisers, financial planners, mutual fund company representatives, advisers at a bank, insurance agents, accountants, and lawyers. Its research found 47% of investors who owned funds outside employer-sponsored retirement plans owned funds solely through advisers, while another 33% owned funds purchased from advisers, fund companies directly, or discount brokers. Eleven percent solely owned funds purchased directly from fund companies or discount brokers. 

Half of all mutual fund shareholders indicated they had ongoing relationships with financial advisers, and between June 2008 and May 2009, nearly all shareholders with advisers had contact with their advisers. Seventy-five percent of shareholders who reported using an adviser indicated that both they and their advisers initiated contact during this time period, while another 13% reported contact initiated only by the shareholder, and 7% reported contact initiated only by their adviser. 

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Those who own funds outside DC retirement plans typically hold mutual funds in their investment portfolios for several years, ICI found. On average, mutual fund accounts held outside retirement plans at work have been open for five years, and shareholders on average have had a relationship with the fund company offering the fund(s) for eight years.

Characteristics of Mutual Fund Investors 

In 2009, an estimated 87 million individual investors owned mutual funds and held 84% of total mutual fund assets at year-end, according to the 2010 Investment Company Fact Book released by the Investment Company Institute (ICI). In total, 50.4 million households, or 43% of all U.S. households, owned funds.  

Among households owning mutual funds, the median amount invested in mutual funds was $80,000, ICI found.  

Seventy-six percent of individuals heading households that owned mutual funds were married or living with a partner, and 47% were college graduates. Seventy-four percent of these individuals worked full- or part-time. 

Of all mutual fund-owning households, 67% were headed by individuals between the ages of 35 and 64, the group considered to be in their peak earning and saving years, the report said. Seventeen percent of mutual fund-owning households were headed by individuals younger than 35, and 16% were headed by individuals 65 or older.  

Eighteen percent of all individuals heading households owning mutual funds were members of the Silent or Greatest Generation (born between 1904 and 1945); 44% were members of the Baby Boom generation (born between 1946 and 1964); 25% were members of Generation X (born between 1965 and 1976); and 13% were members of Generation Y (born between 1977 and 2001). The median age of individuals heading households owning mutual funds in 2009 was 50. 

Nearly one-quarter of mutual fund-owning households had household incomes of less than $50,000; 21% had household incomes between $50,000 and $74,999; 19% had incomes between $75,000 and $99,999; and the remaining 36% had incomes of $100,000 or more. The median household income of mutual fund–owning households in 2009 was $80,000. 

Nonfinancial businesses, financial institutions, nonprofit organizations, and other institutional investors held 15% of mutual fund assets at year-end 2009. 

The 2010 Investment Company Fact Book is here. 

The Markets April 30, 2010

More ETF Types Spring up as Demand Increases

As demand for exchange-traded funds (ETFs) has grown, ETF sponsors have offered more funds with a greater variety of investment objectives, according to the 2010 Investment Company Fact Book released by the Investment Company Institute (ICI).
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In the mid-1990s, ETF sponsors introduced funds that invested in foreign stock markets. Investor demand for these ETFs increased significantly beginning in 2004, and net issuance reached a record $49 billion in 2007.  

While net issuance of global/international ETFs slowed in 2008, investor interest—particularly in emerging market ETFs—picked up in 2009, with total net issuance amounting to $40 billion. Emerging markets ETFs had $29 billion in net issuance and total net assets grew to $109 billion, or 14%, of all ETF assets, making this the second largest category of ETFs. 

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More recently, sponsors have introduced ETFs that invest in particular market sectors, industries, or commodities. At year-end 2009, there were 228 sector and commodity ETFs with $157 billion in assets. While commodity ETFs made up 21% of the number of sector and commodity ETFs, they accounted for 48% of total net assets. Since their introduction in 2004, these nonregistered ETFs have grown from just over $1 billion to $75 billion by the end of 2009, with total net assets more than doubling in the last year. 

In 2009, ETF sponsors continued building on recent innovations by launching actively managed ETFs and ETFs that are structured as funds of funds, both of which were first introduced in 2008, according to ICI. Nine actively managed ETFs—including one nonregistered, commodity-based ETF—were launched, bringing the total number of actively managed ETFs to 22 with about $1 billion in assets. ETF funds of funds, ETFs that hold and invest primarily in shares of other ETFs, at year-end 2009, had grown to 23 ETF funds of funds with $824 million in assets. 

In the past decade, demand for ETFs has accelerated as institutional investors have found ETFs a convenient vehicle for participating in, or hedging against, broad movements in the stock market, the report noted. Retail investors and their financial advisers also have become increasingly aware of these investment vehicles. Assets in ETFs accounted for 6% of total net assets managed by investment companies at year-end 2009. Net issuance of ETF shares remained strong in 2009 at $116 billion, though down from the record $177 billion in 2008. 

An estimated three million U.S. households held ETFs in 2009. Of households that owned mutual funds, an estimated 5% also owned ETFs. ETF-owning households tended to include affluent, experienced investors who owned a range of equity and fixed-income investments. In 2009, 94% of ETF-owning households also owned stocks, either directly or through stock mutual funds or variable annuities. Sixty-six percent of households that owned ETFs also held bonds, bond mutual funds, or fixed annuities. In addition, 48% of ETF-owning households owned investment real estate. 

The 2010 Investment Company Fact Book is here.


  

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