The Investment Company Institute released its "2025 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund space. Subtitled, "A Review of Trends and Activities in the Investment Company Industry," the latest edition tells us, "With stock markets rising across the globe in 2024 (24% in the United States and 10% in the Asia-Pacific region) worldwide total net assets of equity funds, which invest primarily in publicly traded stocks, increased by 12% to $35.7 trillion at year-end 2024. Bond funds -- which invest primarily in fixed-income securities -- saw their total net assets increase 7% over the same period, somewhat reflecting total returns (capital gains and interest income) on bonds in Europe and the Asia-Pacific region of 3% and 7%, respectively. Net assets of money market funds, which are regulated funds restricted to holding short-term, high-quality debt instruments, also increased substantially." We excerpt from the latest "Fact Book" below. (See too Tuesday's Link, "2025 Investment Company Fact Book," which quotes from ICI's press release.)
Discussing "Worldwide" mutual funds (page 18), ICI writes, "Worldwide net sales of money market funds remained robust in 2024, totaling $1.5 trillion, unchanged from 2023.... Investors across all geographical regions continued to demonstrate demand for money market funds, with the United States accounting for more than half of total net inflows. Investor demand for money market funds in the United States and Europe was $920 billion and $239 billion in 2024, respectively. Additionally, in the Asia-Pacific region, money market funds experienced net inflows of $336 billion in 2024."
They explain, "Investors use money market funds because they are professionally managed, tightly regulated vehicles with holdings limited to high-quality, short-term debt instruments. As such, they are highly liquid, attractive, cash-like alternatives to bank deposits. Generally, demand for money market funds is dependent upon their yields and interest rate risk exposure relative to other high-quality fixed-income securities."
ICI continues, "In the United States, net sales of money market funds remained positive because of sustained demand from both retail and institutional investors. In 2023, money market fund yields reached their highest level in more than 15 years, and yields continued to remain high in 2024 despite three cuts to the federal funds rate in the second half of the year. Both retail and institutional investors were attracted to the high market yields and low interest-rate risk offered by money market funds."
The Worldwide section adds, "Demand for money market funds in the Asia-Pacific region is dominated by Chinese money market funds, which hold the bulk of money market fund total net assets in the region. In the second half of 2024, the People's Bank of China lowered interest rates, decreasing the official one-year loan prime rate to 3.1 percent. The reduction in the short-term interest rate was part of a set of policy measures intended to address sluggish economic performance. Regardless, net inflows into money market funds in the Asia-Pacific region remained positive for the year."
Under the section "Role of Investment Companies in Financial Markets," they say, "Investment companies held 24% of bonds issued by US corporations and foreign bonds held by US residents at year-end 2024 and 17% of the US Treasury and government agency securities outstanding. Investment companies also have been important investors in the US municipal securities market, holding 28% of the securities outstanding at year-end 2024. Finally, mutual funds (primarily prime money market funds) held 24% of the US commercial paper market -- a critical source of short-term funding for many major corporations around the world."
ICI writes in Chapter 3, "Overview of Mutual Fund Trends," "The US mutual fund industry remained the largest in the world, with $28.5 trillion in total net assets at year-end 2024. The majority of US mutual fund net assets were in long-term mutual funds, with equity funds alone making up 53% of US mutual fund net assets. Money market funds were the second-largest category, with 24% of net assets. Bond funds (18%) and hybrid funds (6%) held the remainder."
They state, "A variety of factors influence investor demand for mutual funds. For example, US households rely on equity, bond, and hybrid mutual funds to meet long-term personal financial objectives, such as preparing for retirement, saving for emergencies, or saving for education. US households, as well as businesses and other institutional investors, use money market funds as cash management tools because they provide a high degree of liquidity and access to short-term market yields."
ICI adds, "Investor demand for mutual funds remained robust in 2024, as inflows into money market funds and bond funds more than offset outflows from equity funds and hybrid funds. Money market funds experienced strong demand as investors were attracted to high short-term yields. Bond mutual funds saw modest demand, with bond market returns and portfolio rebalancing likely playing key roles. By contrast, equity mutual funds experienced outflows in 2024 (despite strong stock market returns), primarily reflecting an ongoing shift to other products and portfolio rebalancing."
Discussing, "Investors in US Mutual Funds," they comment, "Demand for mutual funds is, in part, related to the types of investors who hold mutual fund shares. Retail investors (i.e., households) held the vast majority (88%) of the $28.5 trillion in US mutual fund total net assets at year-end 2024.... When looking at only long-term mutual funds, the share of net assets held by retail investors was even higher (94%). Retail investors also held substantial money market fund net assets ($4.7 trillion), but this was a relatively small share (19%) of their total mutual fund net assets ($25.0 trillion)."
The Fact Book continues, "By contrast, institutional investors such as nonfinancial businesses, financial institutions, and nonprofit organizations held a relatively small portion of mutual fund net assets. At year-end 2024, institutions held $3.6 trillion or 12% of mutual fund net assets.... The majority (61%) of which was held in money market funds. One of the primary reasons institutions use money market funds is to help manage their cash balances."
The section on "Money Market Funds" (page 57), explains, "In 2024, money market funds saw substantial inflows of $703 billion … as short-term interest rates remained elevated. Demand was positive for all categories of money market funds in 2024, with government money market funds experiencing the bulk of inflows ($606 billion). Prime money market funds and tax-exempt money market funds saw inflows of $88 billion and $9 billion, respectively."
Finally, ICI writes, "In July 2023, the Securities and Exchange Commission (SEC) adopted in its money market funds reforms a mandatory liquidity fee requirement for institutional prime money market funds. This new rule requires institutional prime funds to charge investors a liquidity fee under certain conditions, which is complex and costly for some money market fund sponsors to calculate. These concerns led 16 institutional prime funds to either liquidate or convert to government money market funds before the rule’s implementation on October 2, 2024.... These funds had about $60 billion in net assets at the time of their liquidation or conversion."
