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Letter from the ICI Research: Chapter 1: Chapter 2: Chapter 3: Chapter 5: Chapter 6: Chapter 7: |
Investment Company Assets in 2010U.S.-registered investment companies managed $13.1 trillion at year-end 2010 (Figure 1.1), a $943 billion increase from year-end 2009. Major U.S. stock indexes rose between 13 and 17 percent during the year, significantly increasing total net assets of funds invested in domestic equity markets. Gains in stock prices abroad had a similar effect on funds invested in foreign stocks. However, gains in U.S. stock and bond funds that held international assets were moderated by the strengthening of the U.S. dollar and the resulting decrease in the dollar value of their foreign securities. The rise in the value of U.S. fund assets was tempered somewhat by net outflows from money market funds. Overall, mutual funds reported $297 billion of net outflows in 2010. Investors pulled $525 billion from money market funds, but added $228 billion to long-term mutual funds. In addition, mutual fund shareholders reinvested $157 billion of income dividends and $39 billion of capital gains distributions that mutual funds paid out during the year. Investor demand for exchange-traded funds (ETFs), unit investment trusts (UITs), and closed-end funds remained fairly steady. In 2010, flows into ETFs were on pace with the previous year, with net share issuance (including reinvested dividends) of $118 billion. UITs had new deposits of $31billion, while closed-end funds issued $8 billion in new shares during 2010, both up from 2009. Investment Company Total Net Assets by Type Billions of dollars, year-end, 1995–2010
Download an Excel file of this data. 1Mutual fund data include only mutual funds that report statistical information to the Investment Company Institute. The data do not include mutual funds that invest primarily in other mutual funds. Americans’ Continued Reliance on Investment CompaniesHouseholds are the largest group of investors in funds, and registered investment companies managed 23 percent of households’ financial assets at year-end 2010, little changed from 2009 (Figure 1.2). The increase is largely due to the continued rebound in the value of stocks held in equity and hybrid funds. As households have increased their reliance on funds, their demand for directly held stocks has been decreasing for most of the decade with only one year of moderately renewed interest in 2009 (Figure 1.3). Household demand for directly held bonds rebounded in 2010 after two years of substantially lower demand in 2008 and 2009. In contrast, over the past decade, households’ net investment in registered investment companies has been substantially stronger than their net purchases of directly held bonds and stocks. Households invested an average of $349 billion each year, on net, in registered investment companies versus average annual sales, on net, of $333 billion in directly held stocks and bonds over the past 11 years. Share of Household Financial Assets Held in Investment Companies Percent, year-end, 1980–2010
Download an Excel file of this data. Note: Household financial assets held in registered investment companies include household holdings of ETFs, closed-end funds, UITs, and mutual funds. Mutual funds held in employer-sponsored DC plans, IRAs, and variable annuities are included. Household Net Investments* in Funds, Bonds, and Stocks Billions of dollars, 2000–2010
Download an Excel file of this data. *New cash and reinvested dividends are included. Data include mutual funds, ETFs, and
closed-end funds.
The growth of individual retirement accounts (IRAs) and defined contribution (DC) plans, particularly 401(k) plans, in conjunction with the important role that mutual funds play in these plans, explains some of households’ increased reliance on investment companies during the past two decades. At year-end 2010, 9 percent of household financial assets were invested in 401(k) and other DC retirement plans, up from 6 percent in 1990. Mutual funds managed 54 percent of the assets in these plans in 2010, up from 8 percent in 1990 (Figure 1.4). IRAs made up 10 percent of household financial assets, and mutual funds managed 47 percent of IRA assets in 2010. Additionally, mutual funds managed $1 trillion in variable annuities outside of retirement accounts, as well as $4 trillion of assets in taxable household accounts. Mutual Funds in Household Retirement Accounts Mutual fund percentage of retirement assets by type of retirement vehicle, 1990–2010
Download an Excel file of this data. *DC plans include 403(b) plans, 457 plans, and private employer-sponsored DC plans (including 401(k) plans). Businesses and other institutional investors also rely on funds. Many institutions use money market funds to manage a portion of their cash and short-term assets. For example, as of year-end 2010, nonfinancial businesses held 25 percent of their cash in money market funds, although this is down from 30 percent at year-end 2009. Institutional investors have also contributed to the growing demand for ETFs. Investment managers, including mutual funds and pension funds, use ETFs to manage liquidity. This strategy allows them to remain fully invested in the market while holding a highly liquid asset to manage their investor flows. Asset managers also use ETFs as part of their investment strategies, including as a hedge for their exposure to equity markets. For more statistics on investment companies, see the data tables. Role of Investment Companies in Financial MarketsInvestment companies have been among the largest investors in the domestic financial markets for much of the past 20 years and held a significant portion of the outstanding shares of U.S.-issued stocks, bonds, and money market securities at year-end 2010. Investment companies as a whole were one of the largest group of investors in U.S. companies, holding 27 percent of their outstanding stock at year-end 2010 (Figure 1.5). Investment companies continued to be the largest investor in the U.S. commercial paper market—an important source of short-term funding for major U.S. and foreign corporations. However, mutual funds’ share of the commercial paper market decreased to 45 percent of outstanding commercial paper at year-end 2010 from 51 percent at year-end 2009. Money market funds account for the majority of funds’ commercial paper holdings, and the share of outstanding commercial paper these funds hold tends to fluctuate with investor demand for money market funds and the overall supply of commercial paper. While 2010 marked the fourth year in a row that the total dollar amount of outstanding commercial paper contracted, prime money market funds, which invest in commercial paper, also experienced the largest outflows from their funds since 2003. At year-end 2010, investment companies held 33 percent of tax-exempt debt issued by U.S. municipalities, which is on par with direct household ownership. Funds’ share of the tax-exempt market has remained fairly stable in the past several years despite changes in the demand for tax-exempt funds and the overall supply of tax-exempt debt. Funds held 11 percent of U.S. Treasury and government agency securities at year-end 2010. Inflows into bond funds, which increased their holdings of U.S. Treasury and government agency securities, largely offset sales by U.S. government money market funds. Funds’ share of U.S. government debt securities remained 4 percentage points higher than at year-end 2006, prior to the start of the financial crisis. Funds’ role in the corporate bond market expanded somewhat in 2010. Funds held 13 percent of the outstanding debt securities in this market compared to 11 percent at year-end 2009. Investment Companies Channel Investment to Stock, Bond, and Money Markets Percentage of total market securities held by investment companies, year-end 2010
Download an Excel file of this data. Note: Components may not add to the total because of rounding.
Types of Intermediaries and Number of Investment CompaniesA variety of financial service companies offer registered funds in the United States. By year-end 2010, 74 percent of fund complexes were independent fund advisers (Figure 1.6), and these firms managed more than half of investment company assets. Non-U.S. fund advisers, banks, thrifts, insurance companies, and brokerage firms are other types of fund complexes in the U.S. marketplace. Nearly Three-Quarters of Fund Complexes Were Independent Fund Advisers Percentage of investment company complexes by type of intermediary, year-end 2010
Download an Excel file of this data. Note: Components do not add to 100 percent because of rounding.
In 2010, there were 669 financial firms from around the world that competed in the U.S. market to provide investment management services to fund investors. Historically, low barriers to entry have attracted a large number of investment company sponsors to the fund marketplace in the United States. These low barriers to entry led to a rapid increase in the number of fund sponsors in the 1980s and 1990s. However, competition among these sponsors and pressure from other financial products have reversed this trend over the past decade. From year-end 2000 to year-end 2010, 502 fund sponsors left the fund business. In the same time, 379 new firms entered (Figure 1.7). The overall effect has been a net reduction of 16 percent in the number of industry firms serving investors. The decrease in the number of advisers has occurred with larger fund sponsors acquiring some smaller fund families and with some fund advisers liquidating funds and leaving the fund business. In addition, several other large sponsors of funds sold their fund advisory businesses. The portion of fund companies that have been able to retain assets in addition to attracting new investments has been generally lower in this decade than during the 1990s (Figure 1.8). Two bear markets leading to outflows from stock funds and other competitive pressures affected the profitability of fund sponsors and contributed to the decline in their number over the past 10 years. Number of Fund Sponsors 2000–2010
Download an Excel file of this data. Fund Complexes with Positive Net New Cash Flow to Stock, Bond, and Hybrid Funds Percent, selected years
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The decline in the number of fund sponsors has been concentrated primarily among those advising mutual funds, and their exit from the industry has caused the growth in the number of mutual funds to slow in recent years and to decline over the past two years. Competitive dynamics also affect the number of funds offered in any given year by the fund advisers that remain. In particular, fund sponsors create new funds to meet investor demand, and they merge or liquidate funds that do not attract sufficient investor interest. The pace of newly opened funds continued to slow in 2010 to its lowest level since 1996. Nevertheless, the rate of fund mergers and liquidations dropped appreciably from 2009 and, as a result, the number of mutual funds was reduced, on net, by only 15 funds in 2010 (Figure 1.9). Number of Mutual Funds Leaving and Entering the Industry* 2000–2010
Download an Excel file of this data. *Data include mutual funds that do not report statistical information to the Investment Company Institute. Data also include mutual funds that invest primarily in other mutual funds.
The total number of other investment companies has fallen considerably since 2000, as sponsors of UITs have been creating fewer new trusts (Figure 1.10). These investment companies often have preset termination dates, and in conjunction with a slowdown in the creation of new UITs, the total number of UITs has declined substantially. Additionally, closed-end fund sponsors shut down four more funds than they opened in 2010. Sponsors of ETFs, however, opened 130 new funds, on net, in 2010. Number of Investment Companies1 by Type Year-end, 1995–2010
Download an Excel file of this data. 1Investment company data include only investment companies that report statistical information to the Investment Company Institute. Investment Company EmploymentFund sponsors and third-party service providers offer advisory, recordkeeping, administrative, custody, and other services to a growing number of funds and their investors. From 1997 to 2009, fund industry employment in the United States grew 38 percent from 114,000 workers to 157,000 workers (Figure 1.11). Based on results of an ICI biennial survey, employment peaked in 2007 at 168,000. From March 2007 to March 2009, fund sponsors and their service providers trimmed about 11,000 workers from their payrolls as part of an overall cost-cutting focus in the face of substantially lower revenues from the declines in the stock and bond markets over this period. Investment Company Industry Employment Estimated number of employees of registered investment companies, selected years*
Download an Excel file of this data. *Years in which the ICI employment survey was conducted.
The largest group of workers provides services to fund investors and their accounts, with 36 percent of fund employees involved in these activities in March 2009 (Figure 1.12). Shareholder account servicing encompasses a wide range of activities to help investors monitor and update their accounts. These employees work in call centers and help shareholders and their financial advisers with questions about investor accounts. They also process applications for account openings and closings. Other services include retirement plan transaction processing, retirement plan participant education, participant enrollment, and plan compliance. Investment Company Industry Employment by Job Function Percentage of employees in registered investment company operations areas, March 2009
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At the same time, 28 percent of the industry’s workforce was employed by a fund’s investment adviser or a third-party service provider in support of portfolio management functions such as investment research, trading and security settlement, information systems and technology, and other corporate management functions. Jobs related to fund administration, including financial and portfolio accounting and regulatory compliance duties, accounted for 11 percent of industry employment. Personnel involved with distribution services (e.g., marketing, product development and design, investor communications) represented 16 percent of the workforce. Sales-force employees—including registered representatives and sales support staff where at least 50 percent of the employee’s income is derived from fund sales—and fund supermarket representatives accounted for 9 percent of fund industry jobs. For many industries, employment tends to be concentrated in locations of the industry’s origins, and investment companies are no exception. Massachusetts and New York served as early hubs of investment company operations, and remained so in March 2009 (Figure 1.13), employing nearly 30 percent of the workers in the fund industry. As the industry has grown from its early roots, other states have become significant centers of fund employment—including California, Pennsylvania, and Texas. Fund companies in these states employed about one-quarter of all fund industry employees as of March 2009. Investment Company Industry Employment by State Estimated number of employees of registered investment companies by state, March 2009
Download an Excel file of this data. |
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