In such a market we believe that a strategy that emphasizes low cost and particularly indexing will be successful. Thus, there is a long, long way to go, and as index funds take hold, they will hit at the heart of both the investment and business side of the mutual fund industry. Yet size will be a greater constraint in the future than it has been in the past to outperforming the market. The growing acceptance and success of index funds presents huge marketing challenges to the fund industry. The emergence of index funds in the States is doing a great job of highlighting the issue of cost as a vital part of the investment equation and, frankly, that can only be bad for management companies' profit margins.
Indexing is great for the consumer, but terrible for the management company and fund sponsor.
Cost consciousness is a general issue that gains momentum with time. Such studies are coming out with increasing frequency and are being more broadly disseminated. The success of index funds in the marketplace is highlighting the value of low-cost investment options. The growing awareness of cost has huge and negative ramifications for the profitability of the fund business. Market returns aside, the second factor that will determine our future is the external environment for mutual funds.