For all the talk about high management fees, tax inefficiencies, high turnover and long-term under-performance compared to major market indexes, the mutual fund industry has enjoyed a steady dose of cash inflows over the past decade. Even the explosive growth of exchange-traded funds (ETFs) and hedge funds has failed to bring balance to the marketplace. This all is due to the favorable position of mutual funds in employer-sponsored retirement accounts, such as pension and 401k plans, and the well-oiled marketing machine behind many funds that aims to educate investors on the advantages of managed portfolios without revealing their numerous flaws. The question is: Can this market dominance continue? I believe it can, but only if the mutual funds recognize the changing needs of their customers and leverage the latest technology to add value to their product. If they don't, innovative investment vehicles will continue to gain market share until a new leader emerges from the pack.
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