Scandal be damned. Mutual funds had a fabulous 2004, Bloomberg News reports. Assets in U.S.-based stock, bond and money-market funds surged to $7.9 trillion last November, according to Investment Company Institute data, from $7.4 trillion at the end of 2003. To put that $500 billion increase in perspective, the entire fund industry consisted of $500 billion in 1985.

December data, which will come out later this month, is expected to show investments above $8 trillion for the first time. Last month's stock market rally itself is said to have contributed to the gain by more than $100 billion.

While investors have not turned a blind eye to the wave of scandals that have rocked the industry since the fall of 2003, their enthusiasm for mutual fund investments has hardly waned. Much of the growth in the mutual fund business arises from a move from institutionally managed pension plans towards self-directed retirement accounts such as 401(k)s, which have exploded in popularity.

Market watchers believe, therefore, that this expansion cannot be sustained permanently. It is merely a result of mutual funds being in the right place at the right time, they say. With the recent discussions to privatize Social Security gaining momentum, money managers will look to capture a key position in that market. Stiff competition from hedge funds and exchange-traded funds will also keep them on their toes.

In the meanwhile, rapidly growing markets in China, India and Latin America, should provide enough fodder for new business.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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