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Actively managed funds under seige

By Sue Asci

November 4, 2008 2:42 pm ET

Actively managed mutual funds are facing more pressure for market share from exchange traded funds, separately managed accounts, structured notes and 130/30 funds, according to a study released today by Financial Research Corp.

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The study also found that financial advisers are increasingly turning to cheaper alternative vehicles to build portfolios.

More than 70% of the advisers surveyed by Boston-based FRC said that actively managed mutual funds are still the best investment vehicle for international investing.

Just 50% said that they think that actively managed funds are the optimal vehicle for large-cap-equity investing.

Also, the demand for traditional asset classes such as large-cap domestic equity, may be softening, FRC said.

From 1997 to 2007, large-cap stock funds nearly doubled in assets, FRC reported.

But in the past three years, the category posted just single-digit growth.

By contrast, alternative investments such as long-short funds posted a compound annual growth rate of 35% during the 10-year period.

Other investment vehicles have also grown. From 2002 to 2007, asset allocation funds such as target date and target risk funds had a compound annual growth rate of 28.7%.

The findings are based on an online survey of 302 retail advisers and 18 asset managers that was conducted in January and February.

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