The market share of Fidelity, Vanguard and American Funds in the mutual fund industry continues to expand, with the three giants’ market share now at 37.5%, up from 30% 10 years ago, according to Financial Research Corp.

Year to date through September, those three companies took in a third, or 33 cents, of every dollar invested in the 50 biggest fund companies. That’s up slightly from 31 cents of every dollar in 1997.

“It’s a brutal marketplace. It truly is a ‘David and Goliath’ story,” said Jeffrey Dunham, chief executive officer and president of Dunham & Associates Investment Counsel. “The market does favor these massive-scaled fund families. The vast amount of flows goes to the biggest funds.”

Some believe this increasing dominance will prompt some fund companies to exit the business. “There are a lot of small and midsize mutual fund companies trying to decide if it makes sense to stay in the mutual fund business,” said Dan Sondhelm, vice president at SunStar. “Some of it is because they’re looking to merge with another company that has the scale to do the distribution.”

Many smaller fund companies have had a difficult time bearing the cost of employing a chief compliance officer, added Christine Benz, director of mutual fund analysis at Morningstar.

Chuck Freadhoff, a spokesman for American Funds, noted how it is possible for large fund companies to charge lower fees because of economies of scale, and said that this is an advantage investors should consider. “We believe that there are economies of scale that favor large fund families,” Freadhoff said. “For example, if you had a global research network, as we do, that comes at a cost. When those costs are spread among more shareholders, the cost per shareholder declines.”

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