Thousands of new funds have resulted in 'oversupplied market' and confused investors, say executives
Renowned executives for many investment products claim that the plethora of options has made investing more complicated.
In a warning to the industry, leading asset managers believe the volume of investment products has ballooned to the point that it is confusing ordinary consumers. According to Refinitiv, more than 10,000 funds and exchange traded funds have been introduced in the US alone over the past 10 years.
The demand for low-cost mutual funds and ETFs as well as less conventional alternative assets like real estate and private credit prompted the asset management sector to quickly broaden its product offerings. According to Refinitiv figures, there are more than 550 large-cap growth funds alone.
“On one hand [more choice] is quite good, but at the same time . . . investors have to evaluate more options and alternatives,” Robert Sharps, chief executive of T Rowe Price, which has $1.3 trillion under management, said in an interview. “This creates confusion and uncertainty that is in many ways more difficult for the end investor.”
The sector is "oversupplied with products and capabilities," according to Invesco's incoming CEO Andrew Schlossberg, whose organization manages $1.4 trillion. He claimed that investment groups are under pressure to combine products, restrict investor choice, and eliminate weak products.
The growth of passive investing - a method of monitoring indexes that is typically seen to be easier than choosing stocks and bonds - has been one factor in the increase in the number of products.
Over the previous 10 years, passive mutual funds have increased in number by 28%.
While the number of actively managed funds has declined, Morningstar estimates that the number of actively managed ETFs in the US has nearly quadrupled since February 2021 to close to 1,000.
Complex investment products' "democratisation," which allows regular investors to access previous professional or institutional-only techniques, has also brought about new difficulties. Few small investors are skilled enough to do the tasks of an institution in evaluating products, executives cautioned.
“Today there’s a reasonable divide between the technical elements we bring in terms of the products and the average investor and their ability to really leverage the tools we give to them,” said Yie-Hsin Hung, chief executive of State Street Global Advisors, the asset management arm of State Street which manages $3.3 trillion.
According to executives, investors have profited from several product innovations, including target date retirement funds. Yet, the abundance of options has increased business complexity for both investors and companies striving to control expenses in a cut-throat industry.
During the previous 10 years, State Street, T Rowe, and Invesco have all increased their product offerings. According to experts, success today depends on streamlining options, reducing costs, and differentiating yourself in a competitive market.
Hung said: “In this environment, the challenge is differentiating, making sure investors understand . . . what you’re known for.”