Fund Managers: Q2 2004
New money flowing into the eight categories that we follow under the rubric “fund managers” reached $287.4 billion in Q2 2004.
Of this amount, about 41% was represented by sales of mutual fund shares. To put this in perspective, all domestic savings entering the market through these institutional channels did not amount to even half the savings flowing to the U.S. from overseas, mostly as a result of the trade deficit.
In descending order, net new investments received by institutional money managers during Q2 2004 was as follows:
- Mutual funds … $118.7 billion;
- Exchange traded funds … $60.8 billion;
- Private pension funds … $35.0 billion;
- Closed-end funds … $28.9 billion;
- State and local government retirement funds … $ 21.8 billion;
- Real estate investment trusts … $ 13.8 billion;
- Bank personal trusts and estates … $8.2 billion;
- Money market mutual funds … $0.2 billion.
Flows to exchange traded funds and closed-end funds, two types of investment that were not major channels a decade ago, taken together, have increased more than ten fold since 1999, while net sales of mutual funds have fallen about 38%.
Exchange traded funds have gained popularity because of low administrative costs and the relatively good performance of unmanaged index portfolios, while closed-end funds have benefited from enhanced yields in the bond market due to leveraging and reinvestment of dividends at a discount from net asset value.
Greater scrutiny given to traditional mutual funds by the SEC and the New York Attorney General, a normal political reaction to the performance of these institutions in the crash of 2000-2001, plus reprehensible conduct on the part of some mutual fund managers, may lead to a restructuring of the industry, favoring vehicles with lower costs and more dependable returns, as the Baby Boomers approach retirement and seek more conservative investments.
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