Mutual Funds Struggling to Keep Investors

Some firms, like Fidelity Investments and the Vanguard Group are targeting this market with mutual funds designed to provide retirees with regular income.

"These new products have some characteristics of annuity products, but without the insurance wrapper," says Jeff Tjornehoj, senior research analyst at Lipper, a fund research house. "They pay out 3% or 5% or 7% of the account every year. You get something that will pay out income, a certain percent of your total account balance over course of year, but isn't sold by an insurer and it's cheaper than an annuity."

The fund industry also has to contend with pessimism about the U.S. economy as well as competition from exchange-traded funds. Vincent Deluard, global equity strategist at TrimTabs Investment Research in Sausalito, Calif., notes that U.S. stock funds saw money walk out the door for seven straight months this year, losing a net $69 billion.

He says investors haven't pulled that much money out since 2002, in the throes of a bear market.

Deluard attributes the redemptions to pessimism about the U.S. economy -- investors added a record amount of money to bond funds this year, which he says is a measure of bearishness. They're also buying record amounts of global equity funds, and in particular emerging market stock funds, which have been benefitting from a weak dollar.