With mutual funds’ AUM standing at $79.3trn at the end of 2016, the report by Cerulli Associates argued the expansion in the sector will contine over the next three to four years.
The increasing demand will be supported by rising incomes, growth of the middle classes and improved financial literacy.
The report, titled ‘Global Markets 2017: How to succeed internationally’, added access to defined contribution pension schemes and an increased focus on saving for retirement will also boost mutual fund AUM.
However, active managers could miss out on this so-called ‘boom’ in mutual funds if they do not adapt what they offer clients, Cerulli Associates warned.
Barbara Wall, European managing director at Cerulli, said: “The traditional distribution model is changing and managers must invest in technology and product development to stay relevant.
“In addition, new channels for fund sales are emerging and challenging asset management incumbents.”
While the market trend favours passive strategies, active managers could grab a slice of the action by offering niche investments including fixed income ETFs or strategic beta funds and by slashing fees.
The report makes clear active managers cannot depend on the growth of mutual funds filtering down to them and must make the effort to adapt.
“Managers cannot rely on market growth to support profitability. They must look at new ways to win clients and attract inflows. Cutting fees and improving customer engagement will go some way toward helping them achieve these goals,” the research firm said.
