Tide Shifts for Open-end Mutual Fund Market

June 17, 2008 (PLANSPONSOR.com) - For the first time since their creation, open-end mutual fund launches were eclipsed by the combined introductions of ETFs, closed-end funds, and variable annuities in 2007.

In a press release, Cerulli Associates said the cumulative impact of these and other alternative vehicles, including structured products, funds of funds, and collective and commingled trusts, poses a significant threat to the open-end mutual fund market. Assets in equity mutual funds that do not fit into the nine style boxes have more than tripled since 2002, according to Cerulli.

In a new report Cerulli contends that fresh thinking about Modern Portfolio Theory (MPT) is influencing product development and spawning an array of new alternative investment strategies and asset classes structured as both 1940-Act and non-mutual fund products. This updated thinking coupled with Baby Boomers’ changing needs as they move into retirement is influencing the portfolio construction of both new and established products.

The increase in non-traditional products in recent years is challenging product marketers. Nearly two-thirds of asset managers report that the evolution of portfolio construction and Modern Portfolio Theory is having a large impact on their retail third-party product development strategy.

The changes are also influencing which products and strategies distributors use to meet their clients’ needs, and ultimately which products gather and retain assets, Cerulli said.

For more information on the report, “Product Development in an Evolving Portfolio Construction Environment,” email CAmarketing@cerulli.com .