10 years of broad fund expansion - and prospects for even more
Ten years ago the Investment Company Institute, the trade association of the mutual fund industry, collected data on 410 mutual funds, of which 330, or 80 percent, were classified as aggressive growth, growth, or growth-and-income funds. The remaining 80 funds were either balanced or income funds.
In 1981 the institute followed more than 650 mutual funds. The three equity categories made up 285, or just 44 percent, of the total. Thirty-four percent of all funds, including 150 money market funds, were in categories that did not even exist in the early 1970s.
A few additional numbers illustrate the effect of the broader product line. In 1973, total industry assets were $46.5 billion and total sales were $4.4 billion. Equity funds had the lion's share of the assets and market - 80 percent of total assets and 83 percent of sales.
The general disenchantment with all types of common stock investments after 1974 forced the industry to diversify, to become less dependent on any single product and thus position itself for the major change in climate. The market spoke and we listened.
For example, in 1981 net assets under management reached $242 billion. About the remaining $57 billion, equity products still accounted for 69 percent of the assets, but fully 60 percent of sales were in other types of funds.
Looked at another way, of the $195 billion increase in assets since 1973, money market funds contributed the largest amount, $182 billion. Short-term municipal bond funds contributed $4 billion. Other fund products, primarily bond and income funds, chipped in with $11 billion, and equity funds accounted for only $3 billion.
While new fund products help give the industry a firm foundation for future growth, the original product, the equity fund, recently enjoyed a resurgence of popularity. In 1981 common stock fund sales reached $6 billion, the highest amount in the industry's history.
Probably the best explanation for the renewed popularity of equity funds is the growing recognition of their excellent investment performance record in recent years. For example, for the five years ending with 1981, the average investment in common stock mutual funds with dividends and capital gains reinvested had gained about 92 percent in value, comparing favorably with a five-year 47 percent gain of the S&P 500 - which translates into an 8 percent annual rate. The return on mutual funds also outdistanced the 63 percent rise in the consumer price index over the same period.