Survival of the fittest. What happened in 2015?
If Charles Darwin had observed the recent behavior of the mutual fund industry, his conclusions wouldn’t be much different from those he reached about the natural world. Amid environmental changes, the British naturalist theorized, survivors evolve and adapt, having developed the necessary combination of traits to flourish in the emerging world. What’s true in nature is also true of mutual funds, especially in a fast-changing environment such as that of 2015.
The industry saw a number of developments over the course of the year: asset managers continued to innovate across products, markets and distribution channels in 2015. Further advances in the use of big data, digital technology and social media helped to improve decision making processes, likely provided opportunities to streamline costs, and transform the client relationship process with respect to communications, sales, and customization. During this same time, regulators had been busy proposing and finalizing many rules and regulations around derivatives, fees, cybersecurity, liquidity, third party and intermediary oversight, antimoney laundering and social media that further impacted the industry. From a tax perspective, there was potentially some good news as some US investment funds received withholding tax reclaims from European Union tax authorities, while there may also be tax challenges going forward for the industry with respect to tax structuring.
2015 proved to be a robust year for the mutual fund industry. Total assets have almost doubled since the financial crisis, and robust product demand drove strong new net flows into exchange-traded funds (ETFs) against the backdrop of a growing US economy. Some of industry’s key themes in 2015 included the continued shift to passively managed products; the sustained popularity, growth, and preference for ETFs (compared to other mutual fund products); continued attention on alternative mutual fund products; and a tightening focus, industry-wide, on transparency, fees, and market share. The impact of technology and branding also couldn’t be ignored in 2015. Automated advice continued to make waves, while brand perception and outreach became even more important than in years past. Looking toward the coming year, the mutual fund industry will continue adapting and evolving to meet the downward pressure on fees, changing investor preferences, and the tightening regulatory requirements.