The Markets January 2, 2008

Mutual Fund Assets Show Record Growth in ‘07

2007 proved to be a landmark year with many milestones reached in the worldwide use of mutual funds, according to observations from Strategic Insights.
Reported by

U.S. mutual fund assets experience record growth in the year. By December 2007, the industry’s total assets under management (including open-end funds, closed-end funds, VA-underlying funds, and ETFs) had reached $13 trillion – nearly $1.8 trillion above their level at the beginning of the year, Strategic Insights said.

The asset gains for 2007 represented the largest annual increase ever, exceeding the prior record asset growth of $1.6 trillion during 2006, the report said.

Stock fund investors, on average, earned 10% in 2007, according to Strategic Insights – investors in U.S. equity funds gained 8%, while appreciation for international equity funds averaged 18%. In comparison, the release pointed out the S&P 500 Index added only 3.5% in 2007.

U.S. growth style funds out-performed U.S. value funds by over 12% in 2007 as a whole, while total returns for the average bond fund investor were nearly 5% in 2007.

In addition, data tabulated by the Investment Company Institute (ICI) indicates industry new sales of stock and bond funds reached an all-time record, eclipsing $2.1 trillion (vs. $1.7 trillion in 2006). Equity and hybrid funds accounted for 75% of total long-term fund sales, with the balance going to bond funds (muni bond funds accounted for a fifth of bond fund sales), according to the Insights report. Looking at just equity (excluding hybrid) fund sales, U.S. equity funds accounted for about 70%, and the rest was garnered by international / global equity funds.

Other observations by Strategic Insights included:

  • Flows into active international equity funds neared $200 billion; actively managed U.S. equity funds, in aggregate, net redeemed about $60 billion (just about 1% of their assets); active bond fund net inflows industrywide added up to about $120 billion.
  • Money market fund flow gains neared $600 billion.
  • ETF flows neared $120 billion, roughly double their pace in 2006;
  • Net flows into traditional index funds exceeded $50 billion.
  • Increasing focus on “assembled advice” helped fund-of-fund flows increase to about $135 billion (vs. $110 billion in 2006; these totals include funds-of-funds used in variable annuities).
  • Proceeds of closed-end mutual fund IPOs added up to $28 billion, and were in line with the prior all-time record set in 2003.
  • Aggregate flows into mutual funds of all types (stock, bond and money market) approached $950 billion in 2007, the highest annual flow volume ever.

According to the observations, 2008 will see:

  • Rotation to growth-style investing;
  • High demand for internationally invested stock and bond funds;
  • Further shifts to asset allocation programs (funds-of-funds, mutual fund “wraps”, balanced strategies); and
  • A spreading recognition that Global Allocation (not just “U.S. Large Cap’) should be the core of investors’ accounts.

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