John C. Bogle, founder of
Bogle was speaking this week at New York forum of the
Moreover, Bogle said the industry fanned the fervor in the final years of the mania, creating 116 new technology funds including 40 Internet funds and 12 Nasdaq QQQ funds as well as 378 growth and aggressive growth funds.
If the fund industry is going to successfully hold off competition from separately managed accounts and other threats to mutual funds, Bogle said the industry must get back to basics and strike a proper balance between stewardship and salesmanship.
First of all, he said, fund fees must decline. Although there has been no wave of reductions, Bogle said it must be obvious that investors are sending the majority of their cash to funds that have the highest "stewardship quotient."
He defines fund stewardship quotient as the following:
- The lowest fees on their equity funds
- The greatest index fund orientation
- The strongest bond and money market line up
- The greatest reluctance to pander to public taste in new fund offerings
- The lowest portfolio turnover
- The greatest tax efficiency
- The longest holding periods by their own shareholders
Bogle said even fund families that already have high stewardship quotients have room for improvement. "That improvement will come, day by day, week by week, year by year, as investors turn to firms" that indicate they care about them.
He warned the industry that fund fees would probably continue to suffer in the poorly performing markets for the foreseeable future. Bogle said he anticipates equity returns to range from 4% to 8%, bond returns to yield 5% to 7% and money markets to return 3% to 4%.
Bogle titled his speech, "The End of Mutual Fund Dominance," based on a report that
- Quoting Mark Twain, Bogle said thoughts of such a death have been greatly exaggerated. "If it merely chooses to do so, the mutual fund industry can continue its dominance on the balance sheets of individual investors for as far ahead as the mind can imagine," he said.