60th edition


A Review of Trends and Activities in the Investment Company Industry


US Mutual Funds

A mutual fund is an investment company that pools money from shareholders and invests in a portfolio of securities. In 2019, an estimated 101.8 million individual Americans in 58.5 million households owned mutual funds, relying on them to meet long-term personal financial objectives, such as preparing for retirement, saving for education, purchasing a house, or preparing for emergencies. Mutual funds had net inflows of $454 billion in 2019, or 2.6 percent of year-end 2018 total net assets. Changing demographics and investors’ reactions to US and worldwide economic and financial conditions play important roles in determining how demand for specific types of mutual funds—and for mutual funds in general—evolves.


Overview of Mutual Fund Trends

With $21.3 trillion in total net assets, the US mutual fund industry remained the largest in the world at year-end 2019 (Figure 3.1). The majority of US mutual fund net assets at year‑end 2019 were in long-term mutual funds, with equity funds alone making up 53 percent of US mutual fund net assets. Bond mutual funds were the second-largest category, with 22 percent of net assets. Money market funds (17 percent) and hybrid funds (7 percent) held the remainder.


Equity Mutual Funds Held More Than Half of Mutual Fund Total Net Assets
Percentage of total net assets, year-end 2019

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Investor Demand for US Mutual Funds

A variety of factors influence investor demand for mutual funds, such as funds’ ability to assist investors in achieving their investment objectives. For example, US households rely on equity, bond, and hybrid mutual funds to meet long-term personal financial objectives, such as preparing for retirement. US households, as well as businesses and other institutional investors, use money market funds as cash management tools because they provide a high degree of liquidity and competitive short-term yields.

Continued long-running investing trends and portfolio rebalancing were important factors in investor demand for mutual funds in 2019. Actively managed domestic equity mutual funds continued to experience net outflow, reflecting two major factors: an ongoing shift to index-based products and redemptions to keep equity allocations at their portfolio targets alongside substantial gains in US stock prices during the year. In contrast, demand for bond mutual funds was strong in 2019 as investors directed money toward bond funds to keep fixed-income allocations at their portfolio targets; in addition, the aging of the US population continued to play a role. Relatively attractive yields on short-term assets and portfolio rebalancing by retail investors led to the highest demand for money market funds since 2008.

Entry and Exit of US Mutual Funds

Mutual fund sponsors create new funds to meet investor demand, and they merge or liquidate those that do not attract sufficient investor interest. A total of 297 mutual funds opened in 2019 (Figure 3.2). Fewer equity and taxable bond fund launches contributed to the decline in the number of new mutual funds offered from 2018 to 2019. During the same time, the number of mutual funds that were either merged or liquidated was little changed.


Number of Mutual Funds Entering and Exiting the Industry

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Note: Data include mutual funds that do not report statistical information to the Investment Company Institute and mutual funds that invest primarily in other mutual funds.

Investors in US Mutual Funds

Demand for mutual funds is, in part, related to the types of investors who hold mutual fund shares. Retail investors (i.e., households) held the vast majority (89 percent) of the $21.3 trillion in US mutual fund net assets at year-end 2019 (Figure 3.3). The proportion of long-term mutual fund net assets held by retail investors is even higher (95 percent). Retail investors also held substantial money market fund net assets ($2.3 trillion)—a relatively small share (12 percent) of their total mutual fund net assets ($19.0 trillion).

In contrast, institutional investors such as nonfinancial businesses, financial institutions, and nonprofit organizations held a relatively small portion of mutual fund net assets. At year-end 2019, institutions held 11 percent of mutual fund net assets (Figure 3.3). The majority (58 percent) of the $2.2 trillion that institutions held in mutual funds was in money market funds, because one of the primary reasons institutions use mutual funds is to help manage their cash balances.


Households Held 89 Percent of Mutual Fund Total Net Assets
Trillions of dollars, year-end 2019

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1 Mutual funds held as investments in individual retirement accounts, defined contribution retirement plans, variable annuities, 529 plans, and Coverdell education savings accounts are counted as household holdings of mutual funds.

2 Long-term mutual funds include equity, bond, and hybrid mutual funds.

Developments in Mutual Fund Flows

Overall demand for mutual funds as measured by net new cash flow—new fund sales less redemptions plus net exchanges—strengthened considerably in 2019 (Figure 3.4). In 2019, mutual funds had net inflows of $454 billion (2.6 percent of year-end 2018 total net assets), following net outflows of $187 billion in 2018. Long-term mutual funds experienced net outflows of $99 billion in 2019, as inflows to bond funds were more than offset by outflows from equity and hybrid funds. Money market funds received $553 billion in net inflows, which were likely driven by relatively attractive yields on short-term assets in 2019. A number of factors—including portfolio rebalancing, broad-based increases in global financial markets, ongoing demographic trends, and increased demand for indexed products—appeared to influence US mutual fund flows in 2019.


Net New Cash Flow to Mutual Funds
Billions of dollars, annual

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* In 2012, investors withdrew less than $500 million from money market funds.

The Global Economy and Financial Markets in 2019

Financial markets worldwide experienced strong gains in 2019 despite a weakening in the global economy. Growth in global gross domestic product (GDP) declined from 3.6 percent in 2018 to an estimated 2.9 percent in 2019, largely because of a slowdown in manufacturing, business capital investment, and trade. Across the world, there was a broad deceleration in economic activity. In the United States, real GDP expanded at a 2.3 percent rate in 2019—down from 2.9 percent in 2018. Economic growth also declined in the European Union, from 2.3 percent in 2018 to an estimated 1.7 percent in 2019. Emerging and developing market economies in Asia experienced a marked slowing in economic activity, with real GDP growth declining from 6.3 percent in 2018 to an estimated 5.5 percent in 2019.

Although top-line GDP growth declined in 2019, a variety of metrics indicated several bright spots for the US economy. The labor market had sustained improvement, with the unemployment rate dropping from 3.9 percent at year-end 2018 to 3.5 percent by year‑end 2019. In addition, average hourly earnings rose 3.0 percent in 2019. Inflation was moderate, with the Consumer Price Index rising 2.3 percent in 2019. This is up somewhat from 1.9 percent in 2018, but still close to the Federal Reserve’s target of 2 percent inflation. Consumer spending, adjusted for inflation, was resilient, expanding by 3.3 percent in 2019.

Nevertheless, weakness in spending on structures and equipment by US businesses and a drop-off in US exports prompted the Federal Reserve to decrease the federal funds target rate three times in 2019. This loosening in monetary policy was widely expected by market participants. The first quarter-point reduction occurred at the end of July, when the Treasury yield spread—measured as the difference in yield between 10-year Treasuries and 3-month Treasuries—had been generally negative (inverted) since May. Typically, market participants interpret an inverted yield curve as a signal of a looming recession. The Federal Reserve followed up with two more quarter-point rate cuts in September and October. The Treasury yield curve turned positive in October and generally trended up over the remainder of the year, likely reflecting the actions of the Federal Reserve along with an improved economic outlook and prospects of a trade deal with China.

US stocks, perhaps buoyed by better than expected corporate profits and higher projected economic growth, rose significantly in 2019, returning 31 percent.* Indeed, several major US stock indexes hit record highs during 2019 while volatility was fairly subdued. The Chicago Board Options Exchange (Cboe) Volatility Index (VIX), which tracks the volatility of the S&P 500 index, is a widely used measure of market risk. Values greater than 30 typically reflect a high degree of investor fear and values less than 20 are associated with a period of market calm. The daily VIX was lower than 20 for most of 2019 (94 percent of the trading days) and never exceeded 30. By comparison, 2018 had more episodes of volatility—the daily VIX was higher than 30 in both early February 2018 and late December 2018 and was higher than 20 for 24 percent of the trading days.


* As measured by the Wilshire 5000 Total Market Index.

The performance of stock markets around the world in 2019 reflected similar optimism about international trade and future global economic growth. In the United Kingdom, the Financial Times Stock Exchange (FTSE) 100 Index was up 12 percent for the year, while in Germany, the Deutscher Aktienindex (DAX) rose more than 25 percent. In China, the Shanghai Composite Index was up more than 22 percent, and the broader MSCI Emerging Markets Index indicated that stock prices in emerging markets increased more than 15 percent.

Long-Term Mutual Fund Flows

Net new cash flows into long-term mutual funds, though correlated with market returns, tend to be moderate as a percentage of total net assets even during episodes of market turmoil. Several factors may contribute to this phenomenon. One factor is that households (i.e., retail investors) own the vast majority of US long-term mutual fund assets (Figure 3.3). Retail investors generally respond less strongly to market events than do institutional investors. Most notably, households often use mutual funds to save for the long term, such as for college or retirement. Many of these investors make stable contributions through periodic payroll deductions, even during periods of market stress. In addition, many mutual fund shareholders seek the advice of financial advisers, who may provide a steadying influence during market downturns. These factors are amplified by the fact that net assets in mutual funds are spread across more than 100 million investors and that fund investors have a wide variety of individual characteristics (such as age or appetite for risk) and goals (such as saving for the purchase of a home, for education, or for retirement). They also are bound to have a wide range of views on market conditions and how best to respond to those conditions to meet their individual goals. As a result, even during months when funds as a whole experience net outflows, many investors continue to purchase fund shares.

Equity Mutual Funds

Historically, net new cash flows to equity mutual funds have tended to rise and fall with returns on stocks (Figure 3.5). The MSCI All Country World Daily Gross Total Return Index, a measure of returns on global stock markets, increased 27 percent in 2019, following a 9 percent decline in 2018. Despite strong stock market performance around the globe, equity mutual funds experienced net outflows totaling $362 billion in 2019 (3.9 percent of year-end 2018 total net assets), compared with $257 billion in net outflows in 2018. In both years, outflows from equity mutual funds were concentrated in domestic equity funds.


Net New Cash Flow to Equity Mutual Funds Typically Has Been Related to World Equity Returns

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1 Net new cash flow is reported as a percentage of previous month-end equity mutual fund total net assets, plotted as a six-month moving average.

2 The total return on equities is measured as the year-over-year percent change in the MSCI All Country World Daily Gross Total Return Index.

Sources: Investment Company Institute, MSCl, and Bloomberg

With the exception of January, equity mutual funds had net outflows in every month in 2019 (Figure 3.6). In the first three months of the year, investors had redeemed, on net, only $28 billion from equity mutual funds. Flows to mutual funds, in general, tend to be higher in the first quarter than at other times of the year because investors who receive year-end bonuses may invest that money relatively quickly in the new year. In addition, some investors wait to make contributions to their individual retirement accounts (IRAs) before filing their tax returns. As the year progressed, net outflows from equity mutual funds accelerated, with investors redeeming a net $334 billion from April through December.


Net New Cash Flow to Equity Mutual Funds in 2019
Billions of dollars; monthly, 2019

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Portfolio rebalancing likely played a role in investors’ decisions to redeem from equity funds in 2019. In 2019, the 27 percent return on global stocks outpaced the 9 percent return on US bonds* and would have resulted in equity accounting for a larger share of investors’ portfolios. For example, without taking any investment actions, investors following a 60/40 target portfolio allocation (60 percent in equity funds and 40 percent in bond funds) would have seen their equity allocation rise to almost 64 percent of their total portfolio from relatively strong gains in stock prices. To return to their equity allocation targets, investors would have needed to redeem from equity funds in 2019.


* As measured by the FTSE US Broad Investment Grade Bond Index.

In addition to portfolio rebalancing, net outflows from domestic equity mutual funds in 2019 also may have been driven by investor demand for domestic equity exchange-traded funds (ETFs). As discussed in chapter 4, demand for ETFs has been very strong over the past several years. Domestic equity ETFs had net redemptions in only three months in 2019: January, May, and August. Overall, demand for domestic equity ETFs resulted in $133 billion in net share issuance in 2019 (Figure 4.9). In contrast, domestic equity mutual funds had net redemptions of $302 billion (Figure 3.6) over the same period.

Demand for world equity mutual funds weakened further in 2019, with investors redeeming $60 billion (Figure 3.6), on net, compared with net redemptions of $6 billion in 2018. Outflows from world equity mutual funds were spread across investment objectives, except for emerging market equity mutual funds, which received inflows of almost $2 billion in 2019. Global equity mutual funds, which usually hold some US stocks, saw $32 billion in net outflows in 2019, and international equity mutual funds, which do not hold US stocks, saw approximately $19 billion in net outflows. In addition, regional equity mutual funds and world equity mutual funds that follow alternative investment strategies, collectively, had $10 billion in net outflows in 2019.

Rebalancing likely contributed to outflows from international equity mutual funds in 2019. Some types of funds rebalance portfolios automatically as part of an asset allocation strategy. The assets in funds offering asset allocation strategies—such as target date funds (discussed in more detail here)—have grown considerably over the past decade. These funds typically hold higher weights in foreign equities and bonds than many US investors had traditionally allocated to foreign investments. As the global equity markets rose in 2019, these kinds of asset allocation funds rebalanced their portfolios away from stocks, including foreign stocks, to maintain their target allocations.

Asset-Weighted Turnover Rate

The turnover rate—the percentage of a fund’s holdings that have been bought or sold over a year—is a measure of a fund’s trading activity. The rate is calculated by dividing the lesser of purchases or sales (excluding those of short-term assets) in a fund’s portfolio by average total net assets.

To analyze the turnover rate that shareholders actually experience in their funds, it is important to identify those funds in which shareholders are most heavily invested. Neither a simple average nor a median takes into account where fund assets are concentrated. An asset-weighted average gives more weight to funds with more net assets, and accordingly, indicates the average portfolio turnover actually experienced by fund shareholders. In 2019, the asset-weighted annual turnover rate experienced by equity mutual fund investors was 28 percent, well below the average of the past 35 years (Figure 3.7).

Investors tend to own equity funds with relatively low turnover rates. In 2019, about half of equity mutual fund total net assets were in funds with portfolio turnover rates of less than 21 percent. This reflects the propensity for mutual funds with below-average turnover to attract shareholder dollars.


Turnover Rate Experienced by Equity Mutual Fund Investors

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Note: The turnover rate is an asset-weighted average.

Bond Mutual Funds

Bond mutual fund net new cash flows typically are correlated with the performance of US bonds (Figure 3.8), which, in turn, is largely driven by the US interest rate environment. Long‑term interest rates, while fluctuating somewhat in 2019, finished the year 77 basis points lower than at the beginning of the year. The yield on the 10-year Treasury started 2019 at 2.69 percent and moved within a narrow range for the first couple months before declining in March and ending the month at 2.41 percent. By mid-April, the 10-year Treasury yield had bounced back to 2.60 percent and then declined 113 basis points to reach its lowest point of the year by late August. From that point, the 10-year Treasury yield moved up 45 basis points to finish the year at 1.92 percent. For the year as a whole, the total return on US bonds was 9 percent.


Net New Cash Flow to Bond Mutual Funds Typically Is Related to Bond Returns

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1 Net new cash flow is reported as a percentage of previous month-end bond mutual fund total net assets, plotted as a three‑month moving average. Data exclude high-yield bond mutual funds.

2 The total return on bonds is measured as the year-over-year percent change in the FTSE US Broad Investment Grade Bond Index.

Sources: Investment Company Institute, FTSE Russell, and Bloomberg

Taxable bond funds received inflows in every month of 2019, with net inflows totaling $219 billion in 2019 (Figure 3.9). During the fourth quarter of the year, investors added $75 billion, on net, to taxable bond mutual funds despite increasing long-term interest rates (meaning bond prices were falling). This inflow may seem surprising but portfolio rebalancing, along with other factors, likely played a role. Global stocks returned 9 percent during the fourth quarter while returns on US bonds were close to zero. Returning to the earlier example, an investor with a 60/40 target portfolio allocation (60 percent in equity funds and 40 percent in bond funds) at the beginning of the fourth quarter of 2019, who took no investment actions, would have seen their portfolio share in bond funds drop to 38 percent—below the 40 percent target allocation—by the end of the fourth quarter. Investors and target date funds following asset allocation strategies would have needed to purchase bond funds in the fourth quarter to remain at their target allocations.

Investor demand varied across specific categories of taxable bond mutual funds in 2019. With bond prices generally rising over the year, investors directed money toward investment grade, government, and multisector bond mutual funds, which together received $236 billion in net inflows in 2019; on the other hand, investors redeemed $30 billion from high-yield bond mutual funds in 2019. World bond mutual funds, which typically hold a mix of bonds denominated in US dollars and foreign currencies, saw net inflows of $14 billion.

Like demand for taxable bond funds, demand for municipal bond funds was strong throughout the year, with inflows amounting to $93 billion through year-end 2019 (Figure 3.9).


Net New Cash Flow to Bond Mutual Funds in 2019
Billions of dollars; monthly, 2019

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How Bond Mutual Funds Manage Investor Flows

When meeting redemptions, fund managers’ actions are guided by market conditions, expected investor flows, and other factors. A fund might, for example, decide to sell some of its holdings to raise the cash needed to fulfill redemptions. But its choice of which particular securities to sell may depend on market conditions. For example, during a market downturn, with liquidity at a premium, some fund managers might seek to add shareholder value by selling some of their funds’ more-liquid bonds (which, being in high demand, are trading at a premium to fundamental value). Other fund managers may conclude that it is necessary and appropriate to sell a representative “slice” of their funds’ entire portfolios.

Bond mutual fund managers have other ways of meeting redemption requests. For example, a fund might already have cash on hand. Also, each day bond mutual funds receive cash in the form of interest income from bonds held in the portfolio and proceeds from matured bonds, or from new sales of fund shares.

In addition, bond funds often use derivatives or hold liquid assets other than cash. For example, a high-yield bond fund might hold some portion of its assets in equities, because equities are very liquid and the return profiles of high-yield bonds and equities can be similar. Derivatives can be more liquid than their physical counterparts, and funds are required to segregate liquid assets to support their derivatives positions. As these positions are closed, this cash collateral provides a ready source of liquidity to meet redemptions. This is especially true for many funds commonly referred to as liquid alternative funds, which are explicitly designed to allow frequent investor trading, and do so in large measure through the use of derivatives.

Demand for Bond Mutual Funds

Despite several periods of market turmoil, bond mutual funds have experienced net inflows through most of the past decade. Bond mutual funds received $2.2 trillion in net new cash flow and reinvested dividends from 2010 through 2019 (Figure 3.10).

A number of factors have helped sustain this long-term demand for bond mutual funds. For example, demographics influence the demand for bond mutual funds. Older investors tend to have larger account balances because they have had more time to accumulate savings and take advantage of compounding. At the same time, as investors age, they tend to shift toward fixed-income products. Over the past decade, the aging of Baby Boomers has boosted flows to bond funds. Although net outflows from bond funds would have been expected when long‑term interest rates rose during the fourth quarter of 2019, they were likely mitigated, in part, by the demographic factors that have supported bond fund flows over the past decade.

Although bond mutual fund total net assets have risen in the past decade, they held only 11 percent of the US bond market (US government bonds, corporate bonds, and tax-exempt bonds) at year-end 2019, up from 7 percent at year-end 2009.


Bond Mutual Funds Have Experienced Net Inflows Through Most of the Past Decade
Cumulative flows to bond mutual funds, billions of dollars, monthly

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Note: Bond mutual fund data include net new cash flow and reinvested dividends.

The continued popularity of target date mutual funds also likely helped to limit outflows from bond mutual funds in 2019. Target date funds invest in a changing mix of equities and fixed-income investments. As the fund approaches and passes its target date (which is usually specified in the fund’s name), the fund gradually reallocates assets from equities to fixed-income investments, including bonds. Target date funds usually invest through a fund-of-funds approach, meaning they primarily hold and invest in shares of other equity and bond mutual funds or ETFs. Over the past 10 years, target date mutual funds have received net inflows of $546 billion. In 2019, target date mutual funds had net inflows of $58 billion and ended the year with total net assets of $1.4 trillion (Figure 8.20). The growing investor interest in these funds likely reflects their automatic rebalancing features as well as their inclusion as an investment option in many defined contribution (DC) plans (Figure 8.12).

Hybrid Mutual Funds

Hybrid funds (also called asset allocation funds or balanced funds) invest in a mix of stocks and bonds. This approach offers a way to balance the potential capital appreciation of stocks with the income and relative stability of bonds over the long term. The fund’s portfolio may be periodically rebalanced to bring its asset allocation more in line with prospectus objectives, which could be necessary following capital gains or losses in the stock or bond markets.

Over the past five years, investors have moved away from hybrid mutual funds, which had been a popular way to help investors achieve a managed, balanced portfolio of stocks and bonds (Figure 3.11). In 2019, hybrid mutual funds had outflows of $49 billion (or 3.6 percent of prior year-end total net assets), following $181 billion of net outflows over the previous four years. Many factors likely have contributed to this change in the use of hybrid mutual funds. Investors may be, for example, shifting out of hybrid funds and into portfolios of ETFs that are periodically rebalanced, often with the assistance of a fee-based financial adviser. In addition, investors may be shifting assets toward target date funds and lifestyle funds as an alternative way to achieve a balanced portfolio. For example, in 2019, assets in target date funds were $1.4 trillion, up substantially from year-end 2005 (Figure 8.20).*


* ICI generally excludes funds of funds from total net asset and net new cash flow calculations to avoid double counting. Although target date funds are classified as hybrid funds by ICI, 97 percent of target date fund assets are in funds of funds, and therefore, their flows are excluded from the hybrid mutual fund flows presented in Figure 3.11.

Net outflows from hybrid funds from 2015 through 2019 were concentrated in flexible portfolio funds, which can hold any proportion of stocks, bonds, cash, and commodities, both in the United States and overseas. Following the 2007–2009 financial crisis, many investors sought to broaden their portfolios and lower the correlation of their investments with the market or limit downside risk. Flexible portfolio funds can help investors achieve those goals. As a result, flexible portfolio funds saw net inflows of $88 billion between 2009 and 2014. However, after a long bull market and comparably lower returns in funds offering downside protection, investors have redeemed, on net, $131 billion from flexible portfolio funds in the past five years.


Net New Cash Flow to Hybrid Mutual Funds
Billions of dollars, annual

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The Growth of Other Investment Products

Some of the outflows from long-term mutual funds in 2019 reflect a broader shift, driven by both investors and retirement plan sponsors, toward other pooled investment vehicles. This trend is reflected in the outflows from actively managed funds and the growth of index mutual funds, ETFs, and collective investment trusts (CITs) since 2007.

In 2019, index mutual funds—which hold all (or a representative sample) of the securities in a specified index—remained popular with investors. Of households that owned mutual funds, 40 percent owned at least one equity index mutual fund in 2019. As of year-end 2019, 492 index mutual funds managed total net assets of $4.3 trillion. For 2019 as a whole, investors added $128 billion in net new cash flow to these funds (Figure 3.12). Of the new money that flowed to index mutual funds, 70 percent was invested in funds tied to bond or hybrid indexes, 18 percent was invested in funds tied to world stock indexes, and the remainder went to funds tied to domestic stock indexes. Total net assets in index equity mutual funds made up 30 percent of all equity mutual fund assets in 2019 (Figure 3.13).


Net New Cash Flow to Index Mutual Funds
Billions of dollars, annual

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Index Equity Mutual Funds Continued Their Steady Growth
Percentage of equity mutual funds’ total net assets, year-end

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Index domestic equity mutual funds and index-based ETFs have particularly benefited from increased investor demand for index-based investment products. From 2010 through 2019, index domestic equity mutual funds and ETFs received $1.8 trillion in net new cash and reinvested dividends, while actively managed domestic equity mutual funds experienced a net outflow of $1.7 trillion (including reinvested dividends) (Figure 3.14). Index domestic equity ETFs have grown particularly quickly—attracting over one and a half times the net inflows of index domestic equity mutual funds since 2010. Part of the recent increasing popularity of ETFs is likely attributable to more brokers and financial advisers using them in their clients’ portfolios. In 2018, full-service brokers and fee-based advisers had 19 percent and 31 percent, respectively, of their clients’ household assets invested in ETFs, up from 6 percent and 10 percent in 2011 (Figure 3.15).


Some of the Outflows from Domestic Equity Mutual Funds Have Gone to ETFs
Cumulative flows to domestic equity mutual funds and net share issuance of index domestic equity ETFs, billions of dollars, monthly

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Note: Mutual fund data include net new cash flow and reinvested dividends; ETF data for net share issuance include reinvested dividends.


Fee-Based Advisers Are Driving Larger Portions of Client Portfolios Toward ETFs
Percentage of household assets invested in investment category by adviser type

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1 This category includes wirehouses as well as regional, independent, and bank broker-dealers.

2 This category includes registered investment advisers and dually registered investment adviser broker-dealers.

3 This category excludes an unknown portion of assets from investors who received fee-based advice but implemented trades themselves through discount brokers and fund supermarkets.

Source: Cerulli Associates, “The State of US Retail and Institutional Asset Management, 2019”

CITs are an alternative to mutual funds for DC plans. Like mutual funds, CITs pool the assets of investors and (either actively or passively) invest those assets according to a particular strategy. Much like institutional share classes of mutual funds, CITs generally require substantial minimum investment thresholds, which can limit the costs of managing pooled investment products. Unlike mutual funds, which are regulated under the Investment Company Act of 1940, CITs are regulated under banking laws and are not marketed as widely as mutual funds; this can also reduce their operational and compliance costs as compared with mutual funds.

More retirement plan sponsors have begun offering CITs as options in 401(k) plan lineups. As Figure 3.16 demonstrates, this trend has translated into a growing share of assets held in CITs by large 401(k) plans. That share increased from 6 percent in 2000 to an estimated 23 percent in 2018. This recent expansion is due, in part, to the growth in target date CITs.


Assets of Large 401(k) Plans Are Increasingly Held in Collective Investment Trusts
Percentage of assets in 401(k) plans with 100 participants or more

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Note: Assets exclude Direct Filing Entity assets that are reinvested in collective investment trusts. Data prior to 2017 come from the Form 5500 Research data sets released by the Department of Labor. Data for 2017 and 2018 are preliminary, based on Department of Labor Form 5500 latest data sets.

Source: Investment Company Institute tabulations of Department of Labor Form 5500 data

Money Market Funds

In 2019, money market funds received $553 billion in net new cash flows (Figure 3.17), up from $159 billion in 2018. Government money market funds received the bulk of the inflows ($364 billion), followed by prime money market funds with $198 billion in inflows. Tax-exempt money market funds, on the other hand, had net outflows of $9 billion in 2019.


Net New Cash Flow to Money Market Funds in 2019
Billions of dollars; monthly, 2019

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* In March 2019, prime and tax-exempt money market funds had net inflows of less than $500 million.

The increased demand for money market funds likely stems from the relatively attractive yields on short-term assets in 2019. The Treasury yield spread—measured as the difference in yield between 10-year Treasuries and 3-month Treasuries—started 2019 at a narrow 24 basis points. By late August, as market participants became more pessimistic about a resolution in trade tensions between the United States and China and its negative implications for US economic growth, the Treasury yield spread was hovering around a negative 50 basis points—meaning that 3-month Treasuries were returning more income to investors than 10-year Treasuries. Over the remainder of 2019, actions taken by the Federal Reserve to lower the federal funds target rate pushed short-term interest rates down, while more optimism about the future state of the economy helped to push long-term interest rates up. The Treasury yield spread finished the year at 37 basis points. Even with the reduction in the federal funds rate in 2019, yields on prime and government money market funds remained attractive and far exceeded the stated rate on money market deposit accounts (MMDAs) (Figure 3.18).


Net Yields of Money Market Funds Far Exceeded MMDA Rates Even at the End of 2019
Percent, month-end

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1 The money market deposit account (MMDA) rate is calculated based on a simple average of rates paid on high-yield savings accounts by all insured depository institutions and branches for which data are available.

2 Net yields of money market funds are annualized seven-day compound net yields.

Sources: Crane Data, Bank Rate Monitor, and the Federal Deposit Insurance Corporation