WASHINGTON - Mutual fund assets increased 26.1% in 1993 to a record $2.1 trillion, according to an annual report from the Investment Co. Institute, a trade group.
The $429.1 billion increase was the largest annual dollar increase ever, an amount nearly equal to the industry's growth during the 1980s.
Three-quarters of all mutual fund assets were held by long-term funds at year end. In 1992, the figure was 67%.
"This reallocation illustrates the growing trend among investors in a positively sloped yield curve environment (where long-term interest rates are higher than short-term rates) to divest low-yielding, short-term products and invest in higher-yielding, longer-term instruments," the report said.
At $761.1 billion, assets of bond and income funds represented the largest portion - 36.7% of all fund assets at year end. Tax-exempt bond funds made up 33.5% of bond and income fund assets.
Equity fund assets totaled $749 billion, or 36.1% of all assets, with growth funds comprising 22.3% of the equity segment.
Money market funds garnered the remaining 27.2% of industry assets, or $565.3 billion.
In 1993, approximately 96% of the industry's growth resulted from increases in long-term fund assets, led by equity funds. Stock funds accounted for 52.7% of the total industry gain, compared with 42.8% for bond and income funds. Money market funds accounted for just 4.5% of the gain.
In addition, bond and income fund assets achieved their largest increase ever in 1993, growing $183.8 billion or 31.8%, to end the year at $761.1 billion.
The mutual fund industry scrambled to introduce new funds to keep up with the explosive investor demand. The industry experienced a net gain of 708 funds with various investment objectives in 1993. Of the total, 394 were bond and income funds; 259 were equity funds; 58 were international stock funds and eight were global stock funds. (The figures don't add up because the total is a net number.)
While mutual fund growth was spurred by the rising stock market, growth in assets of commercial banks, savings institutions and credit unions, was hurt by low interest rates. Deposits in commercial banks grew only 1.8% in 1993; credit union deposits grew a modest 5.2% and savings and loan deposits fell 8.1%.
But life insurance company assets grew 10.8% in 1993, driven by investor demand for tax-advantaged instruments such as variable annuities; and rising stock and bond markets, the report said.
Net sales of variable annuity funds increased 97.2% from the 1992 level. For the year, variable annuity funds accounted for 10.1% of long-term fund net sales.
Industrywide, net new sales - total sales less redemptions and exclusive of reinvested dividends - were a record $234.4 billion in 1993, a 49% increase from 1992. Net new sales of equity funds totaled $123.5 billion; net new sales of bond funds totaled $118.5 billion.