As the FT noted last week, this month marks the 100th anniversary of the creation of the mutual fund. Unlike the investment trust, the fund was a US invention. Over on those shores, however, its modern-day prominence is being squeezed by a range of factors, not least the greater tax-efficiency of exchange traded funds (ETFs).
ETFs don’t enjoy the same kind of tax breaks in the UK, which is one reason why the open-ended fund has retained its top-of-the-pile status over here. There are plenty of others, too.
Consider the big shift in the investment world over the past 20 years – passive investments’ surge in popularity. In the UK, the rise of passives has meant index funds have come to the fore more so than exchange-traded equivalents. The iShares UK Equity Index fund, for instance, has over £10bn in assets. The same provider’s MSCI UK ETF holds less than £100mn. For years, many platforms simply didn’t offer ETFs, and that gave index funds a crucial head start.