Mutual Fund Assets Surge To Almost $8 Trillion

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Americans continued to put their investment dollars into mutual funds last year, increasing the combined assets of long-term funds by 6% to $7.9 trillion as of November, from $7.4 trillion in December 2003, according to the Investment Company Institute, Washington.

Individuals and households, rather than institutions, accounted for most of the new investments, ICI says.

Almost half of U.S. households, or 92 million Americans, own at least one mutual fund, ICI reports. For the most part, they put their money into long-term mutual funds (stock, bond and hybrid funds), which have around 76% of all fund assets, ICI notes.

More than half of mutual fund assets are in stock funds. Bond and hybrid funds accounted for roughly one-fourth of assets and money market funds the remaining one-fourth.

Net inflow of cash into long-term funds reached almost $197 billion through November 2004, down 2% from the net intake of $201 billion reported in the same period in 2003.

ICI analysts expect when final figures for 2004 are in, that net new investor dollars in long-term funds for the full year will meet or exceed the net inflow for each of the previous 5 years.

(Net inflow reflects new sales plus the value of exchanges from one fund to another, minus redemptions and cash retained following exchanges of funds.)

For all of 2003, $216 billion was invested in long-term funds, nearly an 80% increase over 2002, with $121 billion.

Most of the demand for mutual funds in recent years has come from renewed investor interest in stock and hybrid funds, which offset a drop in net flows to bond funds, ICI says.

Net sales of stock funds reached more than $167 billion through November 2004, up almost 18% from $138 billion for the same period a year earlier (see table).

That was the largest annual net inflow since 2000, when stock funds had an intake of $309 billion. In fact, January 2004 saw the third largest monthly inflow ICI has recorded, with $43 billion.

Stock funds, which combined have about 53% of total fund assets, attained $4.2 trillion in assets as of November 2004, topping $4 trillion for the first time since January 2001, ICI says.

Year-to-date net inflow to hybrid funds (combinations of stock, bond and money market funds) increased about 29% to $40.6 billion as of November 2004, from around $29 billion as of November 2003.

Investments in bond funds declined significantly from a year earlier, although investors still put more into these funds than they redeemed.

In taxable bonds, net new cash flow fell 96%, from roughly $40 billion to $1.3 billion, as new sales declined from $334 billion YTD in November 2003 to a little over $267 billion in the same period of 2004.

Municipal bond funds continued to see net outflows, which accelerated from $5.8 billion YTD in November 2003 to almost $12.8 billion YTD as of November 2004.

Investors also continued to take cash out of money market funds, albeit at a reduced rate.

As of November 2004, money market funds saw a net cash outflow of $148 billion, compared to an outflow of $236 billion for the same period in 2003.

In addition to the rebound of net new cash flow to long-term mutual funds in 2004, investors continued to hold a favorable view of fund companies, despite recent trading scandals.

In a recent survey of investors, ICI found the overall rating of fund companies has remained high since it began measuring shareholder sentiment in 1997.

In 2004, 72% of fund owners familiar with mutual funds said they had viewed mutual fund companies favorably. In general, investors views of funds correspond strongly to the funds market performance, ICI notes.


Reproduced from National Underwriter Edition, January 27, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.