The mutual fund at 100: Is it becoming obsolete?

ONE HUNDRED years ago on Thursday (Mar 21), Edward Leffler, a former door-to-door salesman of pots and pans, revolutionised financial markets. His invention, the open-ended mutual fund, allowed retail customers to buy into a diversified portfolio of stocks and be confident that they would get a fair value when they wanted their money back.

Leffler’s innovation gave lower- and middle-class people an ownership stake in American capitalism. It also spawned financial titans such as Fidelity and Vanguard, and thousands of smaller competitors that together employ hundreds of thousands of people.

Mutual funds manage nearly US$20 trillion in US assets and about US$63 trillion worldwide, including everything from stakes in fledgling tech startups to government bonds. More than half of all American households and 116 million of the country’s 333 million residents hold shares in at least one mutual fund.