Fund Managers Expect Product Contraction

The ascent of the mutual fund industry has provided end-user investors an impressive array of choices that they did not have years ago. The expansion of choices has also been confusing and overly complex and may discourage investors from deploying money.

Fund executives speaking at the Investment Company Institute membership meeting in Washington on Thursday generally agreed that the menu of investment products has grown unwieldy and will be winnowed down at some point, but it may expand further before contracting.

“There has been a proliferation of products and investors are feeling overwhelmed by the choices,” said Marie Chandoha, chief executive of Charles Schwab Investment Management.

Investment companies can address the glut of products by aligning products more specifically to different outcomes desired by the end user, Chandoha said.

The oversupply of product is evidenced by some fund companies offering multiple variations of even straightforward strategies such as U.S. large-cap equities, panelists noted.

“There will be fewer products over time,” said Gregory Fleming, president of Morgan Stanley Investment Management. “Ten to 20 years from now, there will be a lot less product and a smaller menu of alternatives.”

Currently, there is “too much for all participants” involved in the investment process, Fleming said.

Exchange-traded funds in particular are oversupplied with product, man of which investors do not understand, panelists said.

The “Leadership” panel, which kicked off the ICI conference’s Thursday program, also covered social media and opinion dissemination by fund companies.

Social media is “a terrific way to interact with and engage a younger generation of investors”, said Ronald O’Hanley, president of asset management and corporate services at Fidelity Investments. Regarding opinions, “customers expect us to have a point of view” on issues pertinent to their investments, which is a departure from years ago.