In 2018, the mutual fund business will look much like today's, industry experts predict.
In 2018, the mutual fund business will look much like today's, industry experts predict.
They see a few firms continuing to dominate an industry whose assets could double to $24 trillion. They see record keepers continuing to consolidate and baby boomers spurring innovative products.
Since 2000, there have been three companies that dominate the business, "but there are many more companies that have 2% or 3% of market share," said Robert Pozen, chairman of MFS Investment Management Inc. in Boston.
As of April 30, American Funds Group, advised by Capital Research and Management Co. of Los Angeles, The Vanguard Group Inc. of Malvern, Pa., and Boston-based Fidelity Investments had 37% of the market share between them.
"The top 10 or top 25 mutual fund houses will continue to add one to two points per year of market share," said Donald Putnam, founder of Grail Partners LLC of Boston.
There will be fewer large acquisitions. "I think going forward, you'll see fewer each year and more small and midsize transactions," Mr. Putnam said.
PRODUCT CHANGES
Fund adoptions, however, appear likely to increase.
"This will result in changes to the product lineup rather than changes in the corporate lineup," Mr. Putnam said.
Nevertheless, some midsize fund companies might be acquired by banks, brokerage firms, insurance companies and foreign firms that want to get into the business in the United States, said Michael Miller, managing director for planning and development at Vanguard.
Branding will become more important, said Marty Willis, executive vice president of marketing and product management at Fidelity Investments Institutional Services Co. Inc. of Boston.
"Mutual fund firms will do their own packaging, and they will have funds that can go into these gatekeepers' packaging as well," she said. "The most successful fund groups will have both."
If there is more consolidation, it will probably be in 401(k) record keeping, Mr. Pozen said. "I would guess that in 10 years, we'll only have five record keepers," he said.
Innovation will be driven by the needs of baby boomers, said Paul Schott Stevens, president and chief executive of the Investment Company Institute of Washington.
Even in down markets, money continues to flow into retirement plans and rollovers, he said. And the next generation is going to invest.
Retirement distribution will be the headline, said Keith Hartstein, chief executive and president of John Hancock Funds of Boston. "We'll see more focus on drawing income from equity-type products, and doing it with a guarantee of some sort," he said.
ETFs are another significant innovation, Mr. Stevens said. There were 629 ETFs last year with $608 billion in assets, the ICI reported.
"I think the most dramatic thing you will see is that ETFs will account for half of the assets in the mutual fund industry," Mr. Putnam said.
"Also the business in wrap accounts is going to grow," he said.
The jury is still out, however, on the actively managed ETF.
"As long as the SEC rules require you to promptly disclose whatever trades you make, how will you capture value?" Mr. Pozen said.
The industry is likely to see more mutual funds with alternative-investment components and more managed-payout funds.
The trend toward solutions will continue, said Don Phillips, managing director at Chicago-based research firm Morningstar Inc.
"Ten years ago, the industry was very product-oriented," he said. "Now it's much more focused on solutions as opposed to products."
E-mail Sue Asci at sasci@investmentnews.com.
