Biggest Mutual Fund Fans? High Net Worth Investors

High net worth investors are likely to be leading the charge back into mutual funds, according to Millionaire Corner research that shows the nation’s wealthiest investors are the biggest fans of the pooled investments.

Total mutual fund inflows – including foreign equity, hybrid and bond funds – amounted to more than $13 billion for the week ending Feb. 8, the highest level of deposits since last May, according to data released today by the Investment Company Institute or ICI.  

The sub-category of U.S. equity funds had the best week in almost two years, according to the ICI, which reported more than $1.9 billion in deposits in the week ending Feb. 8. Analysts speculate that the stock market’s strong showing for 2012 is bringing investors back to domestic equity funds, which suffered outflows in three of the last six weeks of this year and lost more than $135 billion to outflows in 2011, according to ICI data.

The lion’s share of mutual fund inflows is attributable to the nation’s high net worth investors, who, as a group, are the biggest participants in the mutual fund market, according to Millionaire Corner research, which defines high net worth investors as having investable assets of $5 million to $25 million. Three-fourths of the high net worth own U.S. stock mutual funds for an average value of $768,000. Nearly half (48 percent) owns international mutual funds, while 43 percent own municipal bond mutual funds and 37 percent own other U.S. bond mutual funds. Nearly one-third (32 percent) own Exchange Traded funds or ETFs.

Mutual funds address several concerns held by high net worth investors, who rank risk and diversification as top investment criteria. Diversification mitigates investment risk by allocating assets across a variety of financial products that – at least in theory – perform inversely to each other. A carefully selected mutual fund can provide a high level of diversification by investing across a market sector or stock index, or a basket mix of stocks and bonds.

As wealth decreases, mutual fund ownership decreases as well, according to our research. Millionaire investors – those with investable assets of $1 million to $5 million – report that mutual funds account for 15 percent of their investable assets. Slightly more than 60 percent of Millionaires own stock mutual funds for an average balance of $243,000. About one-third (32 percent) own municipal bond mutual funds and 28 percent own owner U.S. bond mutual funds. More than one-third (34 percent) own international mutual funds and 19 percent own ETFs.

The Mass Affluent – defined as having investable assets of $100,000 to $1 million – say the mutual funds make up 12 percent of their investments. Forty percent own mutual funds for an average value of $63,000, while 17 percent own municipal bond mutual funds and 15 percent own other U.S. bond mutual funds. Less than 20 percent own international funds and 9 percent, ETFs.

High net worth investors – who tend to have relatively high financial IQs – may also appreciate the relative liquidity of mutual funds and professional management services offered by actively managed mutual funds.