, director of research at Strategic Insight, is having none of the recent gloom in the markets. Nachmany sees only bright spots in the fund industry for 2007 and a remarkable year ahead for 2008. In the year ahead Nachmany predicts high demand for internationally invested stock and bond funds and increasing recognition that global allocation, not just US large cap, should be the core of investors' accounts.
NEW YORK, NY – January 2nd, 2008 -- Despite economic anxiety and only modest stock market gains, 2007 proved to be a landmark year with many milestones reached in the worldwide use of mutual funds. 2008 should build on that foundation. Consider this:
* US mutual fund assets experience record growth: By December 2007, the industry’s total assets under management had reached $13 trillion, or nearly $1.8 trillion above their level at the beginning of the year (these totals include open-end funds, closed-end funds, VA-underlying funds, and ETFs). 2007’s asset gains represented the largest annual increase ever, exceeding the prior (extraordinary) record asset growth of $1.6 trillion during 2006.
* Mutual fund returns: Stock fund investors, on average, earned 10% in 2007; investors in US equity funds gained 8%, while appreciation for international equity funds averaged 18% (all fund return numbers asset-weighted); in comparison, the S&P 500 Index added only 3.5% in 2007. The superiority of aggregate stock fund investor results vs. the S&P 500 Index was driven partly by greater international diversification resulting from US stock funds adding foreign stocks to their portfolios (and benefiting from such stocks’ high 2007 returns), and rising investor allocations overall to funds focusing on international stocks. US growth style funds out-performed US value funds by over 12% in 2007 as a whole (the flow rotation that the growth-value performance differential initiated in 2H 2007 should accelerate in 2008). Total returns for the average bond fund investor were nearly 5% in 2007 (muni bond fund gains were smaller).
* New Sales hit records: According to data tabulated by the ICI, industry new sales of stock and bond funds reached an all-time record, eclipsing $2.1 trillion (vs. $1.7 trillion in 2006). Equity and hybrid funds accounted for 75% of total long-term fund sales, with the balance going to bond funds (muni bond funds accounted for a fifth of bond fund sales); looking at just equity (excluding hybrid) fund sales, US equity funds accounted for about 70%, and the rest was garnered by international / global equity funds.
* Net flows into actively-managed stock and bond funds: Flows into active international equity funds neared $200 billion; actively managed US equity funds, in aggregate, net redeemed about $60 billion (just about 1% of their assets); active bond fund net inflows industrywide added up to about $120 billion.
* Money market fund flow gains neared $600 billion.
* Net flows into index funds: ETF flows neared $120 billion, roughly double their pace in 2006; net flows into traditional index funds exceeded $50 billion.
* Flows into funds-of-funds accelerated: Increasing focus on “assembled advice” helped fund-of-fund flows increase to about $135 billion (vs. $110 billion in 2006; these totals include funds-of-funds used in variable annuities).
* Flows into closed-end funds: Proceeds of closed-end mutual fund IPOs added up to $28 billion, and were in line with the prior all-time record set in 2003.
* Aggregate flows into mutual funds of all types (stock, bond and money market) approached $950 billion in 2007, the highest annual flow volume ever.
* Progress beyond the US: In Asia, stock and bond mutual fund net flows nearly doubled in 2007 and are projected to eclipse $450 billion in 20087. Globally, the mutual fund industry expanded by over $3 trillion in 2007 and investors worldwide now entrust over $27 trillion to mutual fund managers.
* What’s ahead in 2008: Rotation to growth-style investing; high demand for internationally invested stock and bond funds; further shifts to asset allocation programs (funds-of-funds, mutual fund “wraps”, balanced strategies); and a spreading recognition that Global Allocation (not just “US Large Cap”) should be the core of investors’ accounts.
“As has been the case in recent years, positioning one’s portfolio so it participates in wealth creation globally, not just in the US, remains a key consideration for long-term investors,” commented Avi Nachmany, Strategic Insight’s Director of Research.
In its 22nd year, Strategic Insight has become a widely used and well respected research firm for the mutual fund and wealth management industry, providing clients with in-depth studies, consultation, and electronic decision support systems. Products and services offered by Strategic Insight include Simfund MF and Simfund VA - comprehensive proprietary databases of mutual fund and variable annuity data; SimundFiling.com – an advanced S.E.C. filings search engine with daily information and written analysis; Annuity Insight.com – a competitive intelligence service for developments in the VA industry; StrategicInsightGlobal.com – a research and consulting practice that tracks global developments in wealth management; and a number of services tailored to mutual fund boards .
Strategic Insight assists over 250 organizations worldwide, including the largest mutual fund management companies operating in the U.S. and the largest insurance companies serving the VA business. SI clients are responsible for about 90% of all U.S. mutual fund assets. Strategic Insight also serves many Wall Street equity research and investment banking firms, service companies, and many of the largest asset managers in Europe and Asia. For more information, visit our home at www.sionline.com.
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