What Investment Fund Types Are Selling Best? 11 ICI Factbook Trends

If you’re investing for your future self, this one’s for you…

Knowing which way the herd is going is useful information.

Because, sometimes, following the herd offers safety (and cost advantages). Other times, playing a contrarian game is better (though usually riskier).

That makes the annual Investment Company Institute (ICI) factbook fascinating (if long and data-dense).

It’s even more interesting to compare the 2024 ICI Factbook to the 2023 version to see what’s changing.

What the 2024 ICI Factbook Headlines Say About Fund Investors

The Financial Times highlighted the following tidbits from the ICI report:

• The number of US households investing in mutual funds is growing (to over half of US households) despite 2023 showing net outflows (translation: more people are investing, but on average, the amounts invested in 2023 were smaller than those that were withdrawn).
• Individuals and households invest far more in long-term mutual funds (including Exchange Traded Funds, or ETFs) than in money market funds, 83 percent vs. 17 percent, while institutional investors flip that, with about 33 percent in long-term funds and 67 percent in money market funds. As a result, institutional investors own just 5 percent of mutual funds but over half of money market funds.
• Older investors’ money is mostly in mutual funds, with index funds and ETFs continuing to grow in popularity, reaching nearly half of fund assets. Meanwhile, younger investors put money into crypto.

11 Fund Industry Trends From the ICI Factbook Worth Knowing (and Why)

Here are some things I find more interesting than the above factoids:

1. Where Are Fund Assets Invested? Mostly in the US and Europe

I live and invest in the US, so I found it interesting that nearly half of the $68.9 trillion worldwide assets invested in “regulated open-end funds” (i.e., mutual funds, ETFs, and institutional funds) are invested in the US. If you add in Europe, that reaches 80 percent!

Where’s the rest of the world? More on that below.

2. Mutual Funds vs. ETFs: Which Holds More Investor Money?

I started investing in the 1990s when ETFs were just getting started, so I learned to invest in mutual funds.

Over time, ETFs have gained quite a following, so you may think of me as an investing dinosaur because nearly all my financial investments are still in mutual funds.

However, it seems that I’m far from alone. While ETFs are growing in popularity, they account for under a quarter of fund assets.

Kevin Estes, founder and financial planner of Scaled Finance, LLC comments:

3. How Much of the Stock and Bond Markets Do Funds Own?

I once started an experiment to see if I could pick stocks that would outperform the market. Since I had no idea how it would turn out, I limited myself to $25k invested equally across five stocks.

Suffice it to say that the experiment proved to my complete satisfaction that while I can pick funds well, I’m not so great at picking out individual stocks, so I liquidated those stock positions and have stuck with funds ever since.

Given this, I was surprised to learn that US funds own only:

• A third of US corporate equities
• A fifth of US and foreign corporate bonds
• Under a sixth of US treasury and government agency securities
• A quarter of US municipal bonds
• A fifth of commercial paper.

Who owns all the rest?

4. How Much Does the Typical Household Hold in Mutual Funds?

Comparing your finances to those of others seems to be a national sport in the US (and elsewhere), and I’m no exception.

That’s why I found it interesting that the median mutual fund stake of US households owning fund shares is $125k and the median number of funds they own is three.

Without getting into specifics, my numbers are higher in both categories. Just three funds?! Seriously?!

5. How Many US Households Have Tax-Advantaged Retirement Savings?

Pensions, a.k.a. defined-benefit retirement plans, have become an endangered financial species in the US, verging on extinction.

While I had an opportunity to get into one when I worked at the University of Maryland in the 1990s and 2000s, it seemed like an underwhelming proposition, so I invested in a 403b plan instead (similar to 401k plans, but for employees of non-profits and government agencies).

I also invested through IRAs.

It turns out that I’m like most Americans in this — three in four US households have such tax-advantaged retirement savings.

6. How Do Fund Investors Allocate Their Assets? (Call Me Aggressive!)

The asset allocation of fund investments in 2023 was 46 percent in equities, 19 percent in bonds, 11 percent mixed/balanced, 15 percent money market, and nine percent “other.”

As I wrote elsewhere, my allocations are far more aggressive. If we assume the “mixed/ balanced” category is split 60/40 between equities and bonds, the world holds 53 percent in equities vs. my 73 percent stock allocation.

My bond allocation, at 22 percent, is slightly lower than the world’s 23 percent, and my paltry five percent cash position is dwarfed by the world’s 15 percent in money markets.

Since I don’t plan to draw money from my portfolio for at least a decade, I’m comfortable with my allocation.

However, most financial advisors would consider my equity allocation overly aggressive for someone over 60.

7. Active vs. Index Funds: How Close Are Index Funds and ETFs to Parity?

I’ve long believed that you can pick winning actively managed funds, which is reflected in the fact that I hold very little in index funds. It seems I’m bucking a trend.

It seems I’m bucking a trend.

• In 2010, 81 percent of fund assets were invested in active funds, with just 19 percent in index mutual funds and ETFs.
• Five years later, in 2015, index funds and ETFs grew to 28 percent.
• Another five years saw their share reach 40 percent in 2020.
• In 2023, index funds and ETFs reached 48 percent — near parity with active funds!

Jorey Bernstein, Founder, Jorey Bernstein Private Wealth Management says:

8. Where Is Fund Money Flowing? Out of Active Equity Funds

From 2014 to 2023, actively managed domestic equity funds have hemorrhaged assets to the tune of $2.6 trillion!

Most of those funds flowed into domestic equity index ETFs, most of the rest went to domestic index mutual funds, and a small sliver went to active domestic equity ETFs.

As I mentioned above, I’ve been bucking this trend, continuously pouring money into actively managed mutual funds, mostly domestic, but with a good helping of active global and international equity funds.

9. How Much Have Mutual Fund and ETF Fees Fallen?

Fund management fees have always strongly affected shareholder results. The higher the fees the worse off shareholders (that’s you and me).

The funds I invest in have lower than average management fees, for active funds, but higher than index fund fees.

Over the past 23 years, from 2000 to 2023, the simple average of equity mutual fund fees dropped from 1.6 percent to 1.11 percent. Averaging by assets, fees dropped from 0.99 percent to 0.42 percent.

Bond funds started 2000 with lower fees, but dropped less, from 1.13 to 0.83 percent simple average and from 0.76 to 0.37 percent asset-based average. Any way you slice it, lower fees are a big win for us investors.

Index funds, especially, saw fees drop precipitously, from 0.27 percent (equity funds) and 0.21 percent (bond funds) to 0.05 percent (both types, asset-based average).

Interestingly, index ETFs seem to sport higher fees than index mutual funds, at 0.15 percent (equity index ETFs) and 0.11 percent (bond index ETFs).

10. Why Fund Loads and 12b-1 Fees Hurt Investors

Speaking of fees, one especially pernicious fee has always been the so-called “load,” used to pay commissions to advisors who steer investors into a fund.

Talk about a conflict of interest!

An advisor recommends you put your $10k into fund ABC that charges a five percent load. He gets $500 of your money, which means that your investment starts five percent in the red!

He could have sent you to invest in “no-load” fund XYZ instead where every one of your investment dollars would have remained yours, but that wouldn’t have earned him a commission.

Then there’s the so-called “12b-1 fee” that uses your money, as an investor in a fund, to pay for that fund’s marketing efforts that will, at best, do nothing for you, and at worst make the fund too big to remain nimble, making your returns close to the market average you’d get with a no-load, low-fee index fund.

Research proved that fund investment performance was, at best, uncorrelated to sales loads and marketing fees, so investors in load funds fared far worse than those in no-load funds.

That’s why I’ve never bought a single share of any load fund. It also explains why funds that don’t charge load fees and/or marketing-related saw their portion of the investment pie double from 46 percent in 2000 to 92 percent in 2023.

11. What Factors Matter Most When Choosing a Fund?

The ICI report shows high percentages of investors who think the following are very or at least somewhat important.

• Investment objectives (82 percent)
• Risks (87 percent)
• Historical performance (89 percent)
• Performance vs. an index (85 percent)
• Have we mentioned fees yet? (87 percent)

When I pick funds to invest in, I look primarily at the fund’s investment objectives, long-term performance vs. its index, long-term risk-adjusted performance, and fees.

By “long term” I don’t mean the most recent quarter or year. I’m talking at least 10 years, and preferably 15 years.

7 More Surprising Stats About Funds Worldwide From the ICI Factbook

Here are some random stats you might find as interesting as I did:

• Worldwide, there are nearly 140,000 funds. Of these, 43 percent are in Europe, 29 percent in China and the rest of Asia, just 7 percent in the US (!), and 21 percent elsewhere.
• In terms of the type of investments, a third invest in stocks, a sixth in bonds, a quarter are mixed/balanced, nearly a quarter are “other,” and just two percent are money market funds.
• Since 2013, the number of funds increased by 44 percent, but the increase in assets was nearly 90 percent.
• Since 2013, the portion of assets held by funds increased from 22 percent to 27 percent. Who holds the remaining 73 percent? The ICI reports these are “central banks, sovereign wealth funds, pension plans (both defined benefit and defined contribution), banks, insurance companies, hedge funds and private equity funds, broker-dealers, and households’ direct holdings of stocks and bonds.”
• In the US, households hold nearly twice as much of their financial assets in funds than in bank accounts (22 vs. 12 percent). In Europe, that ratio flips, and then some – 32 percent in bank accounts vs. just 10 percent in funds. In Japan, that ratio is even more lopsided – 53 percent in banks vs. a measly five percent in funds!
• In the US, there are over 16,000 funds, of which 54 percent are mutual funds and 21 percent are ETFs, for a ratio of 2.6:1. But when you look at assets, mutual funds hold over 75 percent vs. ETFs’ 24 percent, with the remaining 25 percent of other fund types holding just one percent of assets.
• Running funds is quite lucrative, at least if your investment results are reasonably good. This incentivizes fund companies to launch new funds and, perhaps as much, to close or merge their losers into better-performing funds. From 2013 to 2023, 7880 new funds were launched, while 6465 went away. Significantly more funds were launched than disappeared in five of these 11 years, five years showed near parity (within 15 percent of each other), and just one year, 2020, saw significantly more funds disappear than new ones launched. Interestingly, in all 11 years, the number of new ETFs significantly exceeded the number of ETFs that went away, possibly because most ETFs are index followers, so they can’t perform poorly unless their fees are exorbitant.

The Bottom Line: What the ICI Factbook Can Teach Fund Investors

You can learn a lot from reports such as ICI’s annual factbook.

In the above, I detail 11 topics I found especially interesting, why I think they’re interesting, and how I manage our investments in those regards. I then list seven other random stats that I found interesting, even though they don’t affect my investments much.

Which facts did you find most intriguing and why?

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