2.2: Growth of the Mutual Fund Industry
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Video - Audio - YouTube (Material for this page starts on slide #4.)
The mutual fund industry in the United States started in the mid-1920’s and by 1940 there were 70 mutual funds. By 1970, the number had grown to 350 and by 1980, it was 600. The exponential growth started in the 1980’s and 1990’s and by the year 2000, there were over 9,000 mutual funds. This unbridled growth coincided with the great bull market that started in 1982 and ended in March of 2000. Since then, the growth has moderated but still, as of December 2022, we have approximately 12,000 mutual funds, each with its own investment objective.
| Year | Number of Mutual Funds |
|---|---|
| 1940 | 70 |
| 1970 | 350 |
| 1980 | 600 |
| 1990 | 2,000 |
| 2000 | 8,000 |
| 2022 | 12,193 |
Source: Investment Company Institute, ici.org
How and why did this aggressive growth occur? As mentioned, the mutual fund industry is very profitable and has engendered tremendous competition. So when one company creates a new category or type of mutual fund, many other companies follow suit. We will do our best to internalize the broadest categories.
Likewise, the growth in the assets of mutual funds and number of investors have been equally stupendous. According to the Investment Company Institute, the trade group for the investment company industry, in 1980, five million Americans owned funds, holding 3% of their household financial assets. As of December 2022, 120.5 million Americans in 71.7 million households owned mutual funds. That is 54.7% of all U. S. households. In the table below, we see that as of December 2002, mutual fund assets totaled $29.6 trillion dollars. That is approximately 20.7% of the financial assets of United States households. Mutual funds are now the nation’s largest financial intermediary followed by commercial banks and life insurance companies.
| Year | Assets |
|---|---|
| 2007 | $13.0 trillion |
| 2008 | 10.4 |
| 2009 | 12.2 |
| 2010 | 13.1 |
| 2011 | 13.0 |
| 2012 | 14.7 |
| 2013 | 17.1 |
| 2014 | 18.2 |
| 2015 | 18.1 |
| 2016 | 19.2 |
| 2017 | 22.4 |
| 2018 | 21.4 |
| 2019 | 26.0 |
| 2020 | 29.6 |
| 2021 | 34.5 |
| 2022 | $28.9 trillion |
Source: Investment Company Institute, ici.org
Notice the pronounced dip in 2008. "Wait a minute," you ask, "Didn’t the stock market and many stock mutual funds lose over 50% during the Global Financial Crisis?" The answer is yes and some lost even more. However, the bond market and bond funds only lost 10% to 15% and the money market mutual funds didn’t lose a penny. Hence, the mutual fund industry only saw about a 20% decline in their assets. Also, many stock and bond investors simply moved their assets from stock and bond funds into money market funds when the turmoil hit. Therefore, much of the assets were just shifted around within the industry. (Actually, two money market mutual funds did lose a penny or three in 2008 but again, for those of you interested, type “breaking the buck” into any Internet search engine or contact your local librarian. It’s a nail-baiting story for you Rising Investment Gurus.)
After growing fairly slowly throughout the 2010’s, take note of the slight dip in 2018. At the end of 2018, the stock market lost almost 20%. Christmas Eve was a seriously down day that year. No doubt, many hapless individuals gave up and pulled their money out of their stock mutual funds ‒ only to see tremendous gains in 2019, 2020, and 2021. From $21.4 trillion, the industry saw their assets balloon to $26 trillion in 2019, $29.6 trillion in 2020, and then $34.5 trillion in 2021. That’s trillion with a T. This is typical of market movements. Of course, 2022 saw losses in both stocks and bonds. We hope that those ill-fated investors didn’t finally decide to move their money back into mutual funds in early 2022 ‒ just in time for the next major downturn. Keep a long-term perspective, Dear Students.