Skip to Main Content
Have library access? Log in through your library
Pooling Money

Pooling Money: The Future of Mutual Funds

Copyright Date: 2008
Pages: 139
  • Book Info
    Pooling Money
    Book Description:

    One of the first rules of investing is diversification: spreading resources over many types of investments in order to minimize financial risk. Mutual funds have been the diversification vehicle of choice for the last several decades. In recent years, however, other opportunities for diversification -such as separately managed accounts and exchange-traded funds -have enjoyed rapid growth. What lies ahead for the mutual fund industry in light of this increasingly competitive environment? In this volume, experts from the United States and Japan look at forces of change in their securities markets and offer their views of the future for mutual funds and other forms of securities diversification.

    Contributors include Harold Bradley (Kauffman Foundation), Koichi Iwai (Nomura Institute of Capital Markets Research),Ajay Khorana (Georgia Institute of Technology),Allan Mostoff (Mutual Fund Directors Forum), Brian Reid (Investment Company Institute), Henri Servaes (London Business School), Paula Tkac (Federal Reserve Bank of Atlanta), and Peter Wallison (American Enterprise Institute).

    eISBN: 978-0-8157-0166-8
    Subjects: Business

Table of Contents

Export Selected Citations Export to NoodleTools Export to RefWorks Export to EasyBib Export a RIS file (For EndNote, ProCite, Reference Manager, Zotero, Mendeley...) Export a Text file (For BibTex)
  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Preface
    (pp. vii-viii)
  4. Introduction: Mutual Funds: Looking Back and Ahead
    (pp. 1-12)

    One of the cardinal rules of investing is not to put all of one’s investment ”eggs” in one basket. Investors can lower the risk that they run to achieve a given rate of return—or achieve higher returns for a given level of risk—by diversifying across and within broad categories, most commonly equities and bonds.

    The mutual fund industry, dating from the formation of investment trusts more than two centuries ago, owes its origin to this simple insight: by pooling funds from a large number of investors and placing the funds into portfolios of financial instruments, mutual funds provide...

  5. 1 Mutual Fund Innovation: Past and Future
    (pp. 13-36)

    The process of change, whether in technology, marketing, or the mutual fund industry, is continual. As the demands of investors change and new intellectual discoveries are made, new technology becomes available, and new regulations are passed, the marketplace changes and mutual fund families are presented with new opportunities to make a profit. Innovation, then, is both certain and at the same time unpredictable. It is easy to predict that change will occur—for nothing stays the same—but it is very difficult to predict the exact form that innovation will take.¹ The goal of this chapter, nonetheless, is to predict...

  6. 2 The Future of Japan’s Mutual Fund Industry
    (pp. 37-64)

    Compared with the markets in other countries, Japan’s market for mutual funds (which normally take the form of investment trusts) is small relative to the size of the national economy (figure 2-1). The fraction of household financial assets represented by mutual funds is increasing in both the United States and Germany, where it is now more than 10 percent, while it has been only about 2 to 4 percent in Japan. That is a sizable difference (figure 2-2).

    Although small relative to markets in other countries, Japan’s investment trust market began growing around 2003 (figure 2-3), probably owing to changes...

  7. 3 On the Future of the Mutual Fund Industry around the World
    (pp. 65-94)

    Since the introduction in 1924 of the first mutual fund in the United States, the mutual fund industry has experienced tremendous growth, not only in the United States but also throughout the world. Khorana, Servaes, and Tufano (2005) documents that at the end of 2001, the global mutual fund industry had $11.7 trillion in assets, 40 percent of which was domiciled outside the United States. A significant portion of the remaining assets were concentrated in Luxembourg ($750 billion), France ($721 billion), Italy ($360 billion), and Japan ($343 billion). By the end of the third quarter of 2007, the worldwide figure...

  8. 4 Comments

    • COMMENT The Future of the Mutual Fund Industry in the United States and Elsewhere
      (pp. 95-102)

      Forecasting is as much an art as a science, a fact reflected in chapter 1, by Paula Tkac, and in chapter 3, by Ajay Khorana and Henri Servaes. At times we may be lucky enough to know in advance about a future event, such as a presidential election or, in the case of Tkac’s chapter, the retirement of the baby boom generation. But even then, the specifics of how that event will unfold are generally very uncertain. Inevitably, looking to the future requires examining the past in order to ground our forecasts of uncertain events. Tkac and Khorana and Servaes...

    • COMMENT The Future of Mutual Fund Regulations in the United States
      (pp. 103-113)

      The purpose of the research that Bob Litan and I conducted on the subject of mutual fund regulation was to understand and address the very broad distribution of expense ratios in the U.S. mutual fund industry. As shown in figure 1, which represents 811 class A equity mutual funds, the distribution is extremely wide, almost 300 percent. That is the case even after we removed the highest and lowest 3 percent in order to eliminate outliers. This puzzled us a little because the mutual fund industry is supposed to be competitive, and in most competitive industries the dispersion of pricing...

    • COMMENT The Future of Mutual Fund Regulation in the United States: Another View
      (pp. 114-120)

      I have been asked for my view of the future of mutual fund regulation in the United States. In addressing this subject, I suggest that we start with an understanding of where the industry is today and why it has achieved widespread investor acceptance.

      There can be no doubt that the U.S. mutual fund industry is one of the great financial success stories of recent history. Starting as a modest accommodation by investment counselors to the financial needs of small investors more than seventy years ago, the acceptance of the mutual fund—as both an efficient investment vehicle and a...

    • COMMENT Ingested by T-Rex: How Mutual Fund Investors and Their Retirements Fall Prey to Obsolete Tax and Regulatory Policy
      (pp. 121-130)

      One steps in dangerous waters when asked to comment on whether mutual fund fees are competitively established. It’s not quite as dangerous to suggest that the complexity of today’s regulatory environment impedes competition. An analysis of ”monopolistic competition” depends on several key variables and assumptions. Even a veteran of nineteen years in the mutual fund industry like me finds it difficult to elucidate the fees and their complicated structure. Is the focus on unified fee companies, where the expense ratio and the management fee are equivalent? Or is the focus on the alphabet soup of distribution fees that can seriously...

  9. Contributors
    (pp. 131-132)
  10. Index
    (pp. 133-140)
  11. Back Matter
    (pp. 141-142)