PHOENIX -- Mutual funds may have been an American innovation, but asset managers will now go to China, Brazil, India or wherever returns can be found, said Alan Reid, founder of Forward Fund Management, at the Investment Company Institute’s Mutual Funds and Investment Management Conference.
This movement will continue as U.S. regulators continue to put up “walls and cages, around the operation of mutual funds, he said.
Forward Fund, for instance, pursues alternative investments such as futures and commodities as part of its mix. These, he notes, were once viewed as too “sophisticated” for the average investor.
But they are now available in a wide variety of forms including commodities, market neutral and even managed futures products. These are the kinds of investments that hedge funds charge two percent a year and 20 percent of gains for. But in these funds, investors “are not paying 2/20 but a third of that,” he offered.
This comes as investors move heavily into bond funds and less so into equity funds, the long-time market leader Avi Nachmany, director of research at research shop Strategic Insight, said bond funds now have $3 trillion under management.
Marie Chandoha, president and CEO at Charles Schwab Investment Management, said investors’ appetites for risk declined since 2008, the year the credit crisis erupted.
This created room for products such as fixed-income offerings that gave investors protection from downward market moveemtns.
Investors also wanted the ability to move in and out of funds, rapidly. “The increase in exchange-traded funds says something about investors. They bring transparency, low-cost and greater access to markets,” she said.
Nachmany added that the demand for ETFs will remain “very strong”. He also said that retirees need wealth creation and that’s not going to happen with “index-hugging bond instruments.”
Chandaho said that products coming to market within the next 10 years will look drastically different from their current-day predecessors, but she could not predict in what way or way.
But there will be rapid innovation, she said, which could play back to the strength of the birthplace of mutual funds.
“The first time I heard about mutual funds was when I was in mid-30’s,” said Nachmany. “The transparency and global view make mutual funds such an America product and hopefully we can see it as a continuing American innovation.”
Hung Tran writes for Money Management Executive.