Investment Company Institute


President’s Special Report: Fund Investors’ Muted Response to the COVID-19 Markets

April 23, 2020

Dear Colleague,

I have two important items to share: insights into the reaction of fund shareholders to the chaotic financial markets occasioned by the COVID-19 pandemic; and a brief report on how critical industry operations are faring in this period of almost universal telework.

Fund Shareholders’ Reaction to Recent Market Developments

Many weeks now into the COVID-19 crisis, we are becoming habituated to living and working while sheltering in place. Life has assumed new and different patterns. Registered funds in the United States, too, have spent enough time in the crisis environment to see certain patterns emerge. But some of these patterns are far more familiar—and reassuring.

I had the opportunity on April 15 to share some of our findings and observations about the response of fund investors to the financial downturn with the secretariat of the Financial Stability Board (FSB) during a teleconference the board held with more than 10 global financial trade associations. The FSB had just issued a report on actions needed to support economic recovery after the COVID-19 crisis and yet again highlighted its concerns about nonbank financial institutions—including mutual funds and exchange-traded funds (ETFs)—as a potential source of instability.

As you know, at the outset of the pandemic, when businesses and investors of all kinds raced for liquidity and safe havens, trading tightened in many markets. But the extraordinary actions taken by the Federal Reserve, Treasury, the Securities and Exchange Commission (SEC), and Congress helped relieve pressure and ensure orderly functioning of US financial markets. From data that ICI collected from the peak of the US stock market on February 12 through April 8, I could report that fund outflows were modest, contrary to the FSB’s oft-stated concerns about liquidity risks from “runs” on open-end funds. This was the case despite a period of extraordinary volatility and the fastest stock market decline in US history.

Now that we have yet another week of data, we can see that the trend still holds. Over the nine-week period from February 12 through April 15, redemptions from equity funds have been negligible—totaling only 0.3 percent of the assets those funds held at the end of January 2020. Redemptions from bond funds were larger but totaled some 5 percent of those funds’ January assets. Other segments of the regulated fund industry followed similar patterns. Meanwhile, assets in government money market funds jumped by $1 trillion, reflecting the demands of all investors for the safety and liquidity available from short-term US government securities.

US ETFs experienced elevated levels of secondary-market trading as investors used these funds to adjust their exposures rapidly and efficiently, with the ultimate effect of relieving pressure on the underlying markets and promoting price discovery. Finally, US retirement savers, which represent a significant portion of fund investors, have largely remained invested.

To be sure, we will continue to track developments in the weeks and months ahead. But what we have seen to date is consistent with what we have seen at other times of great market stress. Today’s fund investors are behaving as they have in such periods over the past 75 years, staying the course and remaining invested in the markets. As a result, the regulated fund industry is performing its job financing the real economy.

As the crisis continues to unfold, we hope to have ongoing opportunities to provide data and perspective to help the FSB and other financial regulators around the globe form appropriate policy responses to our experience during the COVID-19 pandemic.

Fund Operations, Too, Are Steady as They Go

At its April 15 teleconference, the FSB secretariat placed special emphasis on operational concerns during the COVID-19 crisis. Again, I was happy to be able to reassure the FSB that operations in the regulated fund sector are performing remarkably well, thanks to years of scenario and business continuity planning.

When our industry switched almost overnight from working business-as-usual to nearly 100 percent telecommuting around the globe, our members demonstrated that they could rise to the occasion. Meanwhile, taking advantage of the stresses during this crisis, cybercriminals are operating at an unprecedented scale, and we can hold the line against attacks because of the vigilance over many years of our cybersecurity experts. ICI’s Chief Industry Operations Officer Marty Burns highlighted the efficient functioning of fund operations during the present crisis in a recent video.

For this impressive feat, I would like to extend a special thanks to all the women and men who are working so hard to maintain the effective delivery of services to fund shareholders during this crisis. I have no doubt that the resilience of fund operations is a key reason for the confidence that our shareholders have shown in our funds, as I reported to the FSB.

As we continue to forge ahead during this crisis, I invite you to continue to look to ICI as a resource. We are here to serve you. Please reach out to any of us whenever you need.

Thank you all again for the important work that you do. I hope that you and your families take good care and remain safe.