Investment Trusts/Mutual Funds

The Investment Trusts/Mutual Funds industry pools money from investors to invest in diversified portfolios. Mutual funds issue or cancel units based on demand, while investment trusts have a fixed number of shares traded on the stock market. Investment trusts can trade at a premium or discount to their NAV and have a board of directors. They can also retain income and borrow money for investment. Collective Investment Trusts (CITs) are similar to mutual funds and are sponsored by banks, experiencing growth in retirement plans due to lower fees.

Performance in the Investment Trusts/Mutual Funds industry is significantly influenced by economic indicators, consumer behavior and investor preferences, technological developments, and regulatory changes. Economic indicators like GDP growth and inflation rates directly impact fund performance. Consumer behavior shows an increasing appetite for low-cost funds and the democratization of private markets. Technological developments such as AI and blockchain are reshaping the industry. Regulatory changes, including ESG considerations and AML requirements, also significantly influence the industry.

The investment trusts and mutual funds industry is competitive, with concentration among top players. Mega managers are expected to accumulate a significant portion of mutual fund AUM. Competition occurs on price and performance. Business models are evolving towards direct investor service through digital channels and platform-based approaches. Consolidation is occurring as smaller asset managers merge or close due to fee compression and rising costs.

The global asset management industry experienced significant growth in 2024, with AUM reaching a record $128 trillion, driven by strong market performance. Fixed-income funds and active ETFs saw positive inflows. Revenue growth outpaced cost growth, increasing profits. The outlook for 2025 suggests rapid change and continued evolution, with profitability being paramount. Key expectations include growth in alternative investments and outsourcing, AI integration, navigating a complex regulatory landscape, industry consolidation, and increased demand for cross-domicile services and mass personalization. The industry faces structural challenges requiring strategic adaptation and technological investment.

Investors in investment trusts and mutual funds face risks including economic sensitivity and market volatility, regulatory exposure, technological adaptation and cybersecurity risks, fee compression and shifts in investor preferences, geopolitical factors, and liquidity risk. Economic downturns and market events can negatively impact fund returns. Evolving global regulatory requirements and increased scrutiny on areas like greenwashing and AML pose ongoing challenges. Protecting sensitive data from cyber threats is critical. The demand for lower-cost passive investments puts pressure on active managers' margins. Global events and political environments can impact asset values. Liquidity risk can arise in extreme cases, with funds potentially imposing exit penalties.