These shares represent a basket of important companies that play a dominant role in a specific country. Increasingly, these are the types of vehicles that Rochester's Walter finds himself turning to as a substitute for mutual-fund diversification. Walter owns no mutual funds outside his retirement plan, preferring to buy common stocks, bonds and the new exchange-traded funds directly. Not a bad strategy, experts say. Hedge funds, which allow managers to make both bearish and bullish bets, are flourishing, too, thanks largely to wealthy individuals looking for alternatives to mutual funds.
Index funds continue to gain fans, in part because of their tax efficiency.
To be sure, mutual-fund investors are not headed for the exits in droves. The high-end market represents a small portion of the pie, and certainly some of the heightened interest in buying securities directly probably stems from a bravado brought on by this lengthy bull market. But it seems the role mutual funds are playing in investment portfolios is changing. They are more likely to be relegated to a narrower role in tax-deferred accounts and used for more specialized sector bets. But the bulk of Fetterman's assets are in individual stocks because he prefers having control over his portfolio.