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Tuesday, July 20, 2004

Funds Not Just for Moms and Pops

News summary by MFWire's editors

The number of times that regulators and legislators commented on how important mutual funds are to small potatoes investors during the fund scandals probably number in the hundreds.

A report issued by the Spectrem Group last week, however, reminds us that the wealthy invest in funds, too. Despite the availability of better-suited products and greater knowledge about investing, those with $500,000 or more in assets still invest in mutual funds.

The Wealthy Still Invest in Funds
Net Worth (Not Including Personal Residence) % of Investable Assets in Mutual Funds (2002)
$500,000-$999.000 16.1%
$1 million - $3 million 16.6%
$3 million - $5 million 18.8%
$5 million + 18.8%
Source: Spectrem Group
The only more popular product among the $500,000- and-over crowd are investment management products, which are generally stocks and bonds in advisor accounts, explained Tanya McDonald, a director at Spectrem.

Products typically associated with the wealthy, like hedge funds, private placement and other private equity composed only eight to 10 percent of total assets, with 10.3 percent being the highest for the $5 million and over investor.

The reason for the relatively higher participation in funds seems to be that the funds have either been around long enough for people to understand what they are, or the fund industry has done a good job of educating the investing public.

Not Baffled
HNW's Understanding of Investment Products % of Resp. who Understand
Mutual Funds 61.0%
Private Equity 33.0%
Venture Capital 32.0%
Exchange Traded Funds 18.0%
Hedge Funds 17.0%
Mutual Fund Wrap Accounts 15.0%
Separately Managed Wrap Accounts 13.0%
Source: Spectrem Group
Competitive products are not as well understood by the wealthy, with private equity being the next best understood product at 33 percent. Separately managed accounts were the least understood product, with 13 percent. In comparison, 61 percent of high net worth individuals understand mutual funds.

Nearly all of even wealthier participants of the Spectrem Group's UHNW 2003 study understood funds, with 91 percent of investors with $5 to $10 million in assets and 94 percent of investors with $10 million and greater in assets understanding funds.

Although exchange-traded funds (ETFs) are a relatively new product, 18 percent of the wealthy understand the product. "The wealthy have shown an appetite for ETFs," commented McDonald.


Edited by: Theresa Sim

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