With mutual fund investors burned by negative returns of 30% to 50% over the past year, they are unlikely to remain confident about their investments, Celent predicts. As a result, the universe of 7,000 funds could shrink by as much as 70% over the next five years, leaving only 2,000 funds in existence.

“The entire financial services sector has been mauled, causing portfolios and retirement plans to hemorrhage value while requiring investors to question such basic issues as capacity for risk and planning for retirement,” said Robert J. Ellis, senior vice president of the wealth management practice at Celent and author of the report, “The Global Credit Crisis: Implications for North American Wealth Management.”

As investors shun equity fund investments, they will increasingly turn to stable value, annuities, cash, bank deposits, fixed income and exchange-traded funds, Ellis predicts. Lifecycle funds failed investors nearing retirement, and separately managed accounts and unified managed accounts, with their ability to steer investors’ holdings to safer investments on the fly, have proven themselves better at helping investors maneuver steep declines, he said.

 

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