Larger mutual fund companies will grab an increasing amount of market share in coming years, leaving their smaller rivals to fight over what remains, according to an industry expert.
"As the game gets more compact, we think the smaller ones are going to have more difficulty than they have had," said A. Michael Lipper, president and chief executive officer of Lipper Analytical Services, who spoke Wednesday at his company's annual media briefing.
Fidelity Investments and Vanguard Group, the two biggest fund companies, have seen their combined market share increase to 16.7%, from 13.2%, since 1987, according to Lipper.
In the same period, the next 23 biggest fund companies saw their market share dip to 47.5%, from 64.4%.
But the remaining fund companies' market share shot up to 31.7%, from 22.3%. These smallest companies in particular will see their fortunes reversed, Mr. Lipper predicted.
Assets managed by mutual fund companies have soared to $3.9 trillion in 1997, from $700 billion in 1987.
Mr. Lipper also predicted that the battle over pricing structures for mutual funds will shift.
Back-end or level-load pricing gained popularity from 1986 to 1996. One- third of funds were back-end-loaded in 1996, versus one-10th in 1986. The other pricing structures, front-end load and no-load, each account for one- third of fund sales, according to Lipper.
In the future, pricing innovation will increasingly come in alternative forms, such as wrap accounts, Mr. Lipper said.
Back-end loads are redemption charges investors pay to withdraw money from a mutual fund. Because the charges decline over time, the arrangement encourages investors to keep their money in the fund longer.
Front-end loads levy their sales charges at the time of investment, while no-load funds do not impose sales charges.