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Younger Generations Are Accelerating the Demise of Mutual Funds
Younger Americans are moving fast to ETFs and individual stocks
Happy Sunday everyone, and welcome to Benzinga’s financial advisor newsletter.
In today’s newsletter, we are covering a recent study by Broadridge Financial Solutions that interest in mutual funds continues to wane, especially among younger Americans.
So, let’s get into the Industry Chatter!
Lastly, if you would like to be featured in our upcoming advisor spotlight editions, click here to send us an email.
INDUSTRY CHATTER
A recent study by Broadridge Financial Solutions shows that the decades-long shift away from mutual funds continues across both retail and institutional investors – with clear implications for how advisors can align their services to better meet client needs.
Broadridge analyzed the activity of over 40 million U.S. individual investors across mutual funds, ETFs, and individual equities. For the first time, mutual funds (38%) fell below individual stock holdings (39%), while ETF ownership climbed to 23% of assets.
“The mutual fund space has long-term threats – there’s no disguising the decline,” said Andrew Guillette, VP of Global Insights at Broadridge. “Mutual funds used to be over half of investments in 2018, and now they’re below equities. That shift has been rather dramatic, especially among younger generations.”
Lower Costs Favor ETFs
The shift is partly driven by the lower costs and tax efficiency of ETFs. But Guillette cited the rise of personalized solutions like separately managed accounts, model portfolios, and direct indexing as another major factor advisors are utilizing to better customize client portfolios.
Broadridge’s study revealed varying mutual fund ownership across age cohorts. At 39%, Baby Boomers hold the highest percentage of their assets in mutual funds, with Gen X at 37%, Millennials at 36%, and Gen Z at 37%. However, the younger generations allocated more to ETFs compared to Boomers.
In the defined contribution space, collective investment trusts (CITs), with their lower costs and fewer regulations, have made major inroads for target-date investing compared to mutual funds. As of March, Morningstar data showed CITs representing 49% of the in-plan target-date fund market.
Don’t Count Mutual Funds Out Yet
Data from Simfund highlighted consistent net outflows from long-term mutual funds, with 2024 seeing around $38 billion in outflows year-to-date as of April. The largest outflow was $41.9 billion in April alone, though a $15.7 billion inflow in February showed demand remains.
While the decline appears irreversible for now, Broadridge’s report underscores the need for asset managers and advisors to continue evolving and personalizing their offerings to align with changing investor preferences across all demographics.
WHAT THE PROS ARE WATCHING
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MARKET RECAP
The stock market extended its bull market rally for another week, with fresh record highs for both the S&P 500 and the tech-heavy Nasdaq 100 indices.
The tech sector – particularly the chipmaker industry, as tracked by the iShares Semiconductor ETF (SOXX), led broader market gains, driven by strong investor optimism toward artificial intelligence growth.
Nvidia Corp.(NVDA)‘s market valuation hit $3 trillion on Wednesday, briefly surpassing Apple Inc. (AAPL) as the second most valuable U.S. company, before experiencing a slight pullback by the week’s end.
On the monetary policy front, the European Central Bank and the Bank of Canada both enacted a 25-basis-point rate cut, signaling the beginning of easing conditions globally and raising hopes for a similar move by the Federal Reserve.
Friday’s May jobs report revealed tighter-than-expected labor market conditions, dampening market expectations of imminent Fed rate cuts.
Market expectations no longer fully price in two Fed rate cuts by the end of the year. Investors reduced bets on a September cut, now giving it a 54% probability, compared to 70% before the jobs data.
AI Investment Confidence
Ark Invest CEO Cathie Wood maintains her bullish stance on AI investments despite selling off Nvidia stock in 2023, underscoring her long-term belief in the sector’s growth potential.
Keith Gill's Comeback
Keith Gill, known as "Roaring Kitty," the key figure in the GameStop (GME) "meme stock" saga, disclosed that he holds over $115.7 million worth of shares in the video game retailer.
Experts warn that Keith Gill‘s GameStop trades, exploiting SEC regulatory gaps, highlight significant market manipulation concerns and call for regulatory scrutiny.
Robinhood Buys Bitstamp
Brokerage Robinhood Markets Inc. (HOOD) saw its stock surge following the acquisition of Bitstamp, highlighting investor confidence in the company’s strategic expansion into the cryptocurrency market.
Apple WWDC 2024
At the upcoming WWDC 2024 event, Apple is expected to showcase advancements in GPT AI, Siri, and VisionPro’s global rollout, highlighting the company’s commitment to innovation and enhanced user experiences.
CEO-Friendly Stock Exchange
Wall Street’s largest fund managers, including BlackRock Inc. (BK) and Citadel Securities, are reportedly planning to challenge the dominance of the New York Stock Exchange and Nasdaq by developing a new national stock exchange in Texas. The “Texas Stock Exchange” has reportedly secured $120 million in funding from individuals and large investment firms.
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THE WEEK AHEAD
Economic Data
Monday: CB Employment Trends Index, EIA Crude Oil Stocks Change
Tuesday: EIA Short-Term Energy Outlook, NFIB Small Business Optimism
Wednesday: Fed interest rate decision and statement, CPI and Core CPI inflation report
Thursday: Initial and continuing jobless claims
Friday: Consumer sentiment and expectations reports
Earnings
Monday: Skillsoft, Yext, FuelCell Energy
Tuesday: Oracle, ADF Group, PetMed Express
Wednesday: Broadcom, Dollarama, Dave & Buster’s
Thursday: Adobe, AMMO, John Wiley & Sons
Click here for the full calendar of economic data and earnings reports.
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