Nearly half of all US households – 92 million Americans – own mutual funds, and they are worth nearly $8 trillion, says a report from the Investment Company Institute (ICI), the national organisation of the US mutual fund industry.
As of November 2004, total industry assets were a record high $7.92 trillion invested in more than 8,000 mutual funds. More than half of the assets were invested in stock funds. Bond and hybrid funds accounted for roughly one-quarter, and money market funds about one-quarter.
Investor demand for long-term funds remained strong in 2004. Long-term mutual funds (stock, bond and hybrid), which represent roughly 76 percent of total fund assets, recorded an overall net inflow of $196.6 billion during the first 11 months of 2004.
Later this month, when full-year figures are available, net new investor dollars to long-term funds in 2004 are expected to match or exceed the amount invested in each of the previous five years.
In 2003, shareholders invested $216 billion in long-term funds, nearly an 80 percent increase from 2002 when $121 billion was invested. The pickup in demand came from renewed investor interest in stock and hybrid funds, which offset a drop in the net flow to bond funds. Individuals and households accounted for most of the new investment.
Stock funds are the most common type of mutual fund, representing more than half (57 percent) of the total number of mutual funds. Approximately 53 percent – $4.22 trillion – of total fund assets are invested in stock funds. November represents the first time stock fund assets have topped $4 trillion since January 2001.
Through November, stock funds experienced a net flow of $167.4 billion – the largest annual inflow since 2000 when stock funds had an inflow of $309 billion. January 2004 ($43 billion) witnessed the third largest monthly inflow on record.
Bond funds are the second most common type of mutual fund, accounting for a quarter of all funds available. As of November, assets held in bond funds were $1.277 trillion, which is slightly below the recorded high of $1.278 trillion in October.
Through November, bond funds experienced a net outflow of $11.4 billion, compared with an inflow of $31 billion in full-year 2003. If bond funds experience an outflow in all of 2004, it will be the first annual outflow since 2000 when bond funds had an outflow of $50 billion.
In November, hybrid fund assets reached a record level of $504.4 billion. Year-to-date, hybrid funds had a positive flow on $40.6 billion, compared with $33 billion in all of 2003. This year’s inflow represents the second largest annual inflow. The largest was $44 billion in 1993.
In addition to the rebound of net new cash flow to long-term mutual funds in 2004, says ICI, investors “retain a favourable view of fund companies.” According to a survey of shareholder sentiment, the overall favorability rating of fund companies has remained high since ICI first began measuring shareholder sentiment in 1997. In 2004, 72 percent of fund owners familiar with mutual funds said they had a favourable impression of mutual fund companies. Reflecting the importance of fund performance in shaping shareholder opinion, mutual fund company favorability has historically correlated with market performance.
The mutual fund industry has seen strong growth in ownership in retirement plans. Retirement assets invested in mutual funds rose 28 percent in 2003 (latest statistics available), reaching $2.7 trillion by year-end. Retirement accounts held 45 percent of all long-term fund assets at year-end 2003. Retirement account investors contributed an estimated $110 billion to long-term mutual funds in 2003, up from $81 billion in 2002.
Overall, 53.9 million U.S. households (48 percent) owned mutual funds in 2004. The number of U.S. households owning mutual funds increased in 2004 after declining the previous two years. For comparison, 51.7 million U.S. households owned mutual funds in 2000, which marked the beginning of the bear market.
Most mutual fund shareholders have a long-term investment horizon, says the ICI. A 2004 ICI survey of fund owners found that nearly all shareholders view their mutual fund investments as savings for the long term and are not concerned about short-term fluctuations in their fund investments. In fact, 96 percent of fund shareholders regard their mutual fund investments as long-term and 72 percent identify retirement as their primary financial goal.