Mutual Fund Management
Description
Companies in this industry manage mutual funds and other portfolio assets of others on a fee or commission basis. Major companies include BlackRock Funds, Fidelity Investments, and Vanguard (all based in the US), as well as Amundi (France), Investec (South Africa), and Schroders (UK).
Mutual funds worldwide are expected to reach more than $145 trillion in assets under management by 2025, according to PricewaterhouseCoopers. The US has the largest mutual fund market in the world, accounting for more than half (55%) of assets. Europe accounts for about 30% of mutual fund assets, and Africa and the Asia/Pacific region together more than 10%, according to the International Investment Funds Association.
The US mutual fund management industry includes about 43,000 firms with a combined annual revenue of $245 billion.
COMPETITIVE LANDSCAPE
Demand is affected by the global economic conditions, evolving investment preferences, and demographic trends. The profitability of individual companies depends on investment expertise and effective marketing. Large companies have economies of scale in operations and marketing. Small companies can compete effectively by specializing in desirable sectors and by producing higher investment returns. The US mutual fund industry is fragmented: the 50 largest firms manage more than 50% of total assets.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major services include the financial management consulting and implementation services (about 50%), and personal financial planning and investment management services (about 40%). Other services include personal financial planning and advice services, merger and acquisition financial consulting services, and management accounting and controllership consulting.
Each mutual fund is a separate open-end investment company, with shareholders (the investors) and a board of directors, but no operating staff. The sponsor of a fund usually serves as investment adviser and manager of the fund, and receives an annual fee typically calculated as a percentage of fund's assets. Large mutual fund operators may sponsor and manage dozens of funds, collecting a management fee from each. In addition to paying a management fee, mutual funds pay the underwriters who sell their shares, the custodian of their portfolio, the transfer agent, and an independent auditor. The expense ratio for a fund is the sum of all annual expenses divided by the average net assets of the fund. The asset-weighted average expense ratio for equity mutual funds is about 0.55%. For index funds, the typical ratio is 0.2%. Mutual fund expense ratios tend to fall as fund assets rise.
A mutual fund typically specializes in one particular type of investment or investment strategy, such as investing only in government bonds or only in the stocks of small companies. By sponsoring a range of such specialized funds (a family of funds), managers allow investors to create their own diversified fund portfolio within a single fund family. Major mutual fund investment categories include large and small US stocks, foreign stocks, bonds, money markets, and hybrids. Growing in popularity are alternative mutual funds (aka "alt" funds), which employ investment strategies that differ from the buy-and-hold strategy typical of the mutual fund industry. Stock mutual funds typically make up the largest proportion of mutual fund assets.
While many mutual funds are actively managed in an attempt to get superior investment returns, some are operated as index funds, which try merely to match the return of a well-known basket of securities such as the S&P 500. Index funds generally have low expenses because they minimize trading and don't need sophisticated investment advice. About 50% of US households invest in mutual fund assets. Of households that own mutual funds, the median amount invested is about $120,000, according to the Investment Company Institute.
Mutual funds worldwide are expected to reach more than $145 trillion in assets under management by 2025, according to PricewaterhouseCoopers. The US has the largest mutual fund market in the world, accounting for more than half (55%) of assets. Europe accounts for about 30% of mutual fund assets, and Africa and the Asia/Pacific region together more than 10%, according to the International Investment Funds Association.
The US mutual fund management industry includes about 43,000 firms with a combined annual revenue of $245 billion.
COMPETITIVE LANDSCAPE
Demand is affected by the global economic conditions, evolving investment preferences, and demographic trends. The profitability of individual companies depends on investment expertise and effective marketing. Large companies have economies of scale in operations and marketing. Small companies can compete effectively by specializing in desirable sectors and by producing higher investment returns. The US mutual fund industry is fragmented: the 50 largest firms manage more than 50% of total assets.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major services include the financial management consulting and implementation services (about 50%), and personal financial planning and investment management services (about 40%). Other services include personal financial planning and advice services, merger and acquisition financial consulting services, and management accounting and controllership consulting.
Each mutual fund is a separate open-end investment company, with shareholders (the investors) and a board of directors, but no operating staff. The sponsor of a fund usually serves as investment adviser and manager of the fund, and receives an annual fee typically calculated as a percentage of fund's assets. Large mutual fund operators may sponsor and manage dozens of funds, collecting a management fee from each. In addition to paying a management fee, mutual funds pay the underwriters who sell their shares, the custodian of their portfolio, the transfer agent, and an independent auditor. The expense ratio for a fund is the sum of all annual expenses divided by the average net assets of the fund. The asset-weighted average expense ratio for equity mutual funds is about 0.55%. For index funds, the typical ratio is 0.2%. Mutual fund expense ratios tend to fall as fund assets rise.
A mutual fund typically specializes in one particular type of investment or investment strategy, such as investing only in government bonds or only in the stocks of small companies. By sponsoring a range of such specialized funds (a family of funds), managers allow investors to create their own diversified fund portfolio within a single fund family. Major mutual fund investment categories include large and small US stocks, foreign stocks, bonds, money markets, and hybrids. Growing in popularity are alternative mutual funds (aka "alt" funds), which employ investment strategies that differ from the buy-and-hold strategy typical of the mutual fund industry. Stock mutual funds typically make up the largest proportion of mutual fund assets.
While many mutual funds are actively managed in an attempt to get superior investment returns, some are operated as index funds, which try merely to match the return of a well-known basket of securities such as the S&P 500. Index funds generally have low expenses because they minimize trading and don't need sophisticated investment advice. About 50% of US households invest in mutual fund assets. Of households that own mutual funds, the median amount invested is about $120,000, according to the Investment Company Institute.
Table of Contents
- Industry Overview
- Quarterly Industry Update
- Business Challenges
- Business Trends
- Industry Opportunities
- Call Preparation Questions
- Financial Information
- Industry Forecast
- Web Links and Acronyms
Pricing
Currency Rates
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