FRC’s Mutual Fund Market Sizing study indicates that investors appear to have stopped chasing equity market performance and are shortening their average mutual fund holding periods, according to a press release. FRC projects flows into mutual funds will begin to normalize in 2011 and trend upward through 2014.
FRC noticed that although equities rebounded strongly during 2009, investors didn’t respond like they have during historical equity market upticks and were simply unwilling to take on more risk at the time. “Investors are still too risk averse to invest new money into products that are traditionally associated with higher risk levels,” said Bridget Bearden, the study’s author, in the press release. “Generally speaking, what we are seeing is a lull in investor performance-chasing behavior. This is demonstrated by investors’ reluctance to jump into equities even in the face of a dramatically improving equities market. We believe this signifies a continued paralysis of flows into the equities market through the end of this year.”
FRC also analyzed average long-term mutual fund holding periods, identifying that they reached their high in 2005 and 2006 at an average holding period of 4.4 years, and subsequently declining to 3.8 years at year-end 2007 followed by a 2.9-year holding period at year-end 2008.
Other key takeaways from the study include:
- Declining Adviser Headcounts—The advisory landscape has shifted dramatically over the past year. The number of retail advisers declined 17% between 2009 and 2010. Specifically, advisers in the independent channel declined due to consolidation and closures of independent broker/dealers, while adviser headcount in the insurance channel fell due to insurance firms spinning off non-core brokerage arms, FRC said.
- Advisers Still Drive Fund Sales—Despite a reduction in the advisory force, retail advisers still represented nearly 60% of total mutual fund gross sales for 2009, representing the channel’s stability as a core mutual fund distribution channel.
- RIAs Largest Opportunity for Asset Managers—In addition to being the largest generator of mutual fund gross sales among intermediary channels, FRC projects the RIA channel to more than double its mutual fund assets by 2014.
The Mutual Fund Market Sizing study is based on an analysis of FRC’s proprietary database of mutual fund assets and net sales, FRC IMPACT, and FRC’s Advisor Insight Series, as well as data from various industry sources, including the Investment Company Institute (ICI).