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Rating:The Open-End Mutual Fund Biz Turns 100 Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, March 25, 2024

The Open-End Mutual Fund Biz Turns 100

Reported by Neil Anderson, Managing Editor

The U.S. mutual fund industry became a centenarian last week, thanks to a Boston-based fund firm's birthday.

Carol William Geremia
MFS Investment Management
President, Head of Distribution
Last Thursday was the 100th anniversary of the launch of the United States' first open-end mutual fund, the Massachusetts Investors Trust (MIT, not to be confused with the nearby university of the same abbreviation). The birth of MIT on March 21, 1924 was simultaneously the birth of what later became MFS Investment Management [profile], the fund firm that powers MIT.

MFS' sales and relationship management team members gathered in Beantown last week for the firm's annual global distribution meeting, and on Wednesday evening (the night before the big milestone), the MFS team hosted a centennial celebration. The MFS team is also highlighting the big anniversary with an updated firm history timeline (featuring lots of tidbits about the company's first century) and an expanded logo. (The logo now reads "MFS 100 years," and the words are preceded by the "infinite M" symbol the company has used since 2012.) Meanwhile, the folks at the Investment Company Institute (ICI, a mutual fund industry trade group) are celebrating the industry's centennial with a year-long program (and a logo for the occasion, too).

"ICI will be celebrating throughout the year," Sarah Holden, director of retirement and investor research at ICI, tells MFWire, noting that ICI's 2024 conferences each include panels and discussions reflecting on the industry's first century and what's next. "We have a dedicated webpage with some materials [on the centennial] ... We also have a campaign on social media."

"Throughout the year we will also leverage the anniversary as a chance to engage with clients to thank them for their continued trust in MFS and emphasize the importance of having a long-term view," Dan Flaherty, an MFS spokesperson, tells MFWire:
In a world of increasingly short-term viewpoints and pressures that impact the length of time investors hold securities, using our 100th anniversary and our century of investing experience through all kinds of markets to emphasize a long-term view is important. We think the aspects of the mutual that have made it so appealing to so many are part of that story. Diversification, transparency, simplicity, liquidity and being well-regulated have become the hallmarks for what investors look for when putting capital to work long term in a responsible way. We're proud to have had a hand in that and see how those attributes have helped millions of investors create wealth to secure their financial futures in the US and around the world.

The MFS team credits Edward Leffler, a former door-to-door salesman of pots and pans who then spent six years as a securities broker, with coming up with the idea to create an open-end mutual fund: a fund that continuously issues and redeems shares, with transaparency and fair pricing. Leffler teamed up with Charles Learoyd and Hatherly Foster Jr. of the brokerage Learoyd, Foster & Co. to launch the first such fund, MIT, in March 1924, and Sherman Adams (another key early MIT trustee) joined that summer.

When Congess passed the Invesment Company Act of 1940, laying the groundwork for the modern U.S. mutual fund industry, Flaherty notes, MIT became a kind of blueprint for the industry. The '40 Act attempted to address the problems of many other 1920s era pooled investment products (like blind trusts and early closed-end funds) by emphasizing four principals: regular transparency, third-party custody, equal treatment of all shares, and daily valuation and liquidity.

Also in 1940, in light of the new law and industry framework, the National Committee of Investment Companies was launched in New York City. In 1941, that committee became the National Association of Investment Companies, and in 1961 the assocation transformed into the modern ICI.

By the end of 1940, per ICI data, there were 68 open-end mutual funds in the U.S., and those funds had $450 million in combined AUM. By the end of 1961 (the birth year of the ICI brand), the industry's fund count had more than doubled to 170 funds and its AUM had increased more than fifty fold to $22.79 billion. By the end of 2022, the industry (not including funds-of-funds and ETFs) had grown to 7,393 funds and $22.11009 trillion in AUM. (That's a 109-fold increase in fund count and a 49,133-fold increase in AUM.) Holden notes that, as of last year, 52 percent of U.S. households own mutual funds (often through retirement plans like 401(k)s and individual savings vehicles like IRAs).

"This really reflects the democratization of investing in the U.S.," Holden says. "We really are part of the story of Main Street coming to own and share in Wall Street."

"The mutual fund has really opened up the world of investing to Americans of all ages and all incomes," Holden adds. "It's something to be proud of."

MFS continues to offer its original fund, MIT, which had $6.6 billion in AUM as of February 29, 2024. The firm overall now has $615 billion in AUM, more than 80 U.S. mutual funds, 39 offshore funds, and more than 2,100 employees worldwide (including about 1,500 in the Boston area).

A recent Financial Times article highlighting the anniversary includes reflections from MFS president Carol Geremia and other fund industry leaders and insiders. The piece reflects on the rise of both mutual funds and their younger offshoot, ETFs (as well as other product structures like SMAs and CITs). Even as ETFs gain marketshare, open-end mutual funds retain advantages for active managers shielding their trading, strategies that might grow big enough to necessitate closing off new investments, and strategies distributed through tax-friendly retirement plans. 

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