Mutual funds are still popular among investors but the growth of the fund industry itself is beginning to falter, according to Cerulli Associates, a Boston-based research firm.
Characteristics of a mature industry include slowing sales growth, lower pricing and smaller profit margins, and the emergence of leaders amid consolidation, a Cerulli report says. The fund industry is now in that mature phase.
Fund assets are ticking upward but at a more restrained pace than before, according to the report. The growth rate for the first quarter ended March 31, 1999, was only 3.5%, compared with the 1998 growth rate of 20.5% and 1997's rate of 28.5%.
Reflecting consolidation, the number of mutual fund complexes was lower for the first time at 419 in 1998, compared with 424 in 1997. And the number of new mutual fund portfolios is trending down, too. Debuts peaked in 1997 at 574 portfolios and went down to 311 in 1998, the report says. First-quarter 1999 only brought 11 new products.
The reasons for the cooling off? The Internet and underperformance, the research firm says. In 1998, only 17% of actively managed U.S. diversified equity funds outperformed the S&P 500. In the past 10 years, the S&P 500 has outperformed 84% of all large-cap funds, Cerulli says. In addition, online stock trading has grown in popularity due to easy access and low costs compared with owning funds.
Detailed charts can be seen in the September 1999 issue of Registered Representative.