Mutual funds are in decline: what comes next?
For almost a century mutual funds have provided a simple and effective solution for investing: delegation to professionals, diversification through pooling of client assets, and security through a regulated legal structure. But times are changing, and so is the way people want to invest.
At the same time as investments into mutual funds have been growing exponentially, technology has been making incredible advancements in areas such as electric aviation, AI and the cloud. Meanwhile, the needs of the human population and - more specifically - asset owners and wealth managers have also evolved dramatically; becoming more diverse, complex, and challenging.
As these needs and the technological environment have evolved, it seems hard to believe that mutual funds have broadly stayed the same yet still remain so relevant. Can they continue to meet the needs of the modern day, or are we at an inflexion point, where we have seen the peak of mutual funds? Could they even become extinct?
With advancements in technology, alternative options available to asset owners and wealth managers, and generational differences in how people like to invest, mutual funds’ dominant market share will continue to decline. This decline is likely to be significantly more rapid in the US and globally the rate of decline will likely increase as we see significant advancements in tokenisation.
Questions this paper addresses:
- What are the benefits and limitations of mutual funds?
- What are the other options available today and in the future?
- ETFs
- Model
- SMA/Direct Indexing
- Tokenisation
- Why are we seeing this shift? – from a client perspective
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