The Markets January 25, 2007

Average Equity Investor Earns Double-Digit Returns in 2006

In 2006, the average equity fund investor earned 16.4% and money market mutual fund yields rose to 5%, as diversification away from the U.S. and into International funds aided in asset growth, according to a Strategic Insights analysis.
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“Investors and their financial advisers are increasingly focused on prudent diversification,” commented Avi Nachmany, Strategic Insight’s Director of Research, in the news release. “Rapid growth of funds-of-funds and other pre-packaged allocation programs such as mutual fund “wraps,” atypical investments in bond funds in the face of the flat yield curve lately, and the extraordinary interest in international funds are just a few manifestations.’

The asset-weighted average total return for different asset classes for the one-year period as of December 2006 was:
  • Domestic equity – 14.1%,
  • International equity – 24.2%,
  • Taxable bond – 5.4%, and
  • Tax-free bond – 5.1%.
Mutual fund assets grew over $1.6 trillion in 2006 and international/global equity funds saw net inflows of $190 billion in 2006, according to a Strategic Insights news release. Flows into all kinds of fund-of-fund programs added up to $111 billion in 2006, 35% above the prior record of 2005. Most of 2006’s upsurge in funds of funds flows is attributed to target-date lifecycle funds. Among fund management companies with over $1 billion in assets at the beginning of the year, about 60% attracted positive cash flows last year. But a steady pace of M&As and ownership restructuring persisted for both large and smaller managers.

By year-end 2006, according to Strategic Insights, assets held in all types of U.S. registered mutual funds had eclipsed $11 trillion, including:
  • traditional open-end funds – $9.3 trillion;
  • VA underlying funds – $1.3 trillion;
  • ETFs structured as mutual funds – $309 billion, plus additional assets in ETFs structured as UIT ETFs and ETF-like non-RIC exchange-traded vehicles; and
  • closed-end mutual funds – nearly $300 billion.

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