Mutual fund asset growth worldwide is expected to rise by a moderate 10% this year, according to Financial Research Corp. By comparison, the industry’s assets rose 16% in 2010.
Projected inflows of $325 billion, a 28% increase, will be undercut by market declines and economic conditions among the largest developed nations, and these forces will continue to weigh heavily on the industry through 2012, FRC said.
“As a result of the global economic conditions, we expect moderate flows and returns for most mutual funds and ETF categories through the balance of this year and into next,” said Larry Petrone, author of the study. “However, for the 2013 through 2016 period, we expect meaningful improvement in sales and returns for domestic equity, balanced, corporate and international funds, as well as ETFs.”
However, FRC also projects that the pace of ETF growth will slow in 2011, as international investors have become more cautious.
“While we foresee a brief respite in the blistering pace of asset growth in ETFs, which nearly doubled between 2008 and 2010, we see the pace picking up in 2012, with ETFs reaching $1.4 trillion in assets by the end of the year.”
FRC also believes the U.S. economy and markets will continue to be weak for some time to come because of the depth of the Great Recession, sovereign debt issues in Europe, the weak housing market and high unemployment in the U.S.
“The state of the global economy is clearly influencing our view of the near term,” Petrone said. “The combination of the various repercussions of the recession are likely to stunt equity fund returns, while low yields and the threat of higher inflation will make fixed income funds less attractive than over the preceding two years. However, we see improvement over the 2013 through 2016 period, driven by more long-term demographic, product and retirement trends.”
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