“A study performed by New York-based research and consulting firm Novarica makes some bold predictions about the investment industry, painting a dismal picture for the future of traditional actively-managed mutual funds. The study predicts that nearly half of mutual funds will disappear by 2015, being replaced by low-cost ETF alternatives,” Michael Johnston Reports from ETF Database.
Among the highlights of the study:
- The number of mutual funds will decline from 8,022 in 2008 to 4,237 in 2015, with assets declining from $9.0 trillion to $6.75 trillion over that period.
- The number of ETFs is projected to increase from 728 in 2008 to 2,618 in 2015, with assets in ETFs more than doubling from $500 billion to $1.15 trillion.
- The number of actively-managed ETFs will increase to 325 by 2015. Currently, there are only a handful of funds, including five PowerShares ETFs and Grail Avdisors’ initial offering (GVT).
Johnston Continues to report “Not surprisingly, the study points to the cost advantages of ETFs as one of the primary reasons for the predicted decline in popularity of mutual funds. Many passively-managed ETFs offer expense ratios that undercut active funds by as much as 100 basis points. Over long investment horizons, the impact of compounding the additional costs can have a material impact on bottom line portfolio performance.
“While I’m a huge believer in the benefits of ETFs relative to traditional actively-managed ETFs, I can’t help but be a bit skeptical of the predictions from the Novarica study. Reaching more than 2,600 ETFs by 2015 would require adding funds at a clip of about 25 per month, an outrageous pace. According to monthly snapshot reports released by State Street, the industry added a net of seven new funds in April and lost 14 in May. While new fund offerings are a regular occurrence, the industry will need to increase its pace significantly to hit the 2,600 mark in six years,” Johnston Reports.
Read the full article: HERE