The number of investment products has proliferated to the point that they are confusing retail investors, top asset management executives have said in a warning for the industry.
About 4,300 funds and exchange traded funds alone have been launched in the US in the past decade, according to Refinitiv, bringing the total to more than 10,000. Many of these products are available to everyday investors.
The asset management industry rushed to diversify its offerings in response to customer appetite for low-cost mutual funds and ETFs as well as less traditional alternative investments such as real estate and private credit. Large-cap growth funds alone total more than 550, Refinitiv data show.
But top executives offering some of these products say this rapid expansion has complicated investing.
“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 $1.3tn under management, said in an interview. “This creates confusion and uncertainty that is in many ways more difficult for the end investor.”
Andrew Schlossberg, the incoming chief executive of Invesco, called the industry “oversupplied with products and capabilities”. Investment groups are under pressure to consolidate products and limit investor choice, as well as cull products that are underperforming, said Schlossberg, whose company manages $1.4tn.
“Look at the number of mutual funds and ETFs in the industry, you can just multiply it on and on,” Schlossberg said. “Do we really need that many?”
One driver of growth in the number of products has been the rise of passive investing, a strategy of tracking indices generally viewed as simpler than picking stocks and bonds. The number of passive mutual funds has grown 28 per cent over the past decade.
While actively managed funds have decreased in number, the number of actively managed ETFs in the US has almost doubled since February 2021 to close to 1,000 according to Morningstar.
Executives say many product innovations, such as target date retirement funds, have benefited investors. But so much choice has made business more complex for both investors and firms trying to manage costs in a competitive sector.
The “democratisation” of complex investment products, which give retail investors access to strategies traditionally reserved for professionals or institutions, has also created new challenges. Executives cautioned that few small investors are sophisticated enough to do the work of an institution in evaluating products.
“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 $3.3tn.
State Street, T Rowe and Invesco have themselves expanded product offerings over the past decade. Streamlining choice, cutting products and standing out in a crowded field is now important for growth, executives said.
Hung said: “In this environment, the challenge is differentiating, making sure investors understand . . . what you’re known for.”