Mutual fund growth is slowing down and fund managers are forced to trim the fat. Does this mean exchange traded funds (ETFs) are going to pick up the slack?
It looks like mutual funds are going to shatter the all-time record for liquidations, which was previously set back in 2001, reports Kevin Burke for Ignites. One wonders where all this liquid cash is running off to?
Due to the lower assets from poor performances, a number of firms may liquidate their funds in 2009 or merge to stay competitive in the market. This is a good thing. It’s not like soccer for eight-year-olds where everyone gets to play and everyone gets a trophy. By increasing competitiveness and efficiency, there will be an increased economies of scale which may lead to lower fund expenses for fund shareholders.
The first funds that will be offered onto the chopping block are probably absolute return funds and 130/30 funds that do not implement traditional institutional strategies. BRIC funds are also vulnerable because of their small asset bases and poor future prospects for taking in new assets.
With very few new products capturing the fickle eyes of fund investors, the amount of funds is going to continue to contract, but to what extent is up for debate.
On the optimistic side – we are all about the positive note – funds hacked away could be replaced in different areas of the markets, i.e. ETFs.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.