Mutual funds are one of the primary investment vehicles in existence, and they’re still growing fast.
According to Mordor Intelligence, U.S. mutual fund net asset values stood at $17.71 trillion at the end of 2018, and are expected to grow to $23.73 trillion by 2024.
Altogether, there were 9,599 mutual funds registered in the U.S. in 2018, with domestic equity and bond funds comprising 61% of all U.S. funds.
Yet at one time there were was only one mutual fund in the U.S., and the prospects for growth were pessimistic, to say the least.
The first – and oldest – mutual fund in the U.S. was the MFS Massachusetts Investors Trust, which rolled out in 1924 under the management of MFS Investments, out of Boston, Mass. Pooled mutual funds predated the MFS fund, however, with the Netherlands, the U.K., and France all generating pooled funds as early as the 1770s.
After the first MFS mutual fund, more funds came to the U.S., but growth was slow, as it took years for investors to grow accustomed to pooling their money together with other investors to form the “mutual” in mutual fund.
That “pooled funds” investment model enabled investors to purchase a diversified portfolio of financial instruments that would steer money, depending on the fund’s investment goals, into different asset classes. The idea did eventually take hold, as fund accounts grew and more and more mutual funds popped up on the investment landscape.
The pooling of funds model wasn’t an accident.
Any savvy money manager – even in 1925 – knew that getting hundreds of investors to pour small amounts of cash into a new mutual fund was critical for business buy-in. The pitch was straightforward – investors would pool small amounts of money into a single fund. In return, those investors could earn a bigger slice of the profit pie than they would by investing cash independently.
After a few sketchy years, that pitch worked. The money that fund companies charged those investors added up quickly, which in turn helped early fund companies like MFS, Putnam Investments and Fidelity accumulated great wealth over the years.
Consider Fidelity Investments, which opened its first mutual fund in 1930. Today the Boston-based mutual fund giant has approximately $2.4 trillion in assets under management. That’s about the same amount of value of the entire U.S. fashion industry, and represents roughly the same amount of money climate change activists say is needed to combat global warming.
But nobody really knew all that in 1924, or in the years right afterward. Back then, the Wall Street firms pumping out new mutual funds were industry pioneers, with no guarantee their mutual fund idea would work.
History of the MFS Massachusetts Investors Fund
To understand the history of the world’s first mutual fund, you must first get to know the company that launched the fund.
That company was Massachusetts Financial Services, founded in 1924 by L. Sherman Adams, Charles H. Learoyd and Ashton L. Carr. The three founders had come up with a new model for asset management noted above – pulling money together from different investors and putting all the cash into a single mutual fund that was designed to meet the financial goals of those investors.
The Massachusetts Investors Fund started in 1924 with $50,000 in assets, and was billed as the world’s first open-ended investment fund. The term “mutual fund” would not actually come until years later, as fund pioneers like MFS tinkered with the fund model as it eventually grew faster and faster.
By 1929, the term “mutual fund” became more prevalent, and as MFS saw assets in its fledgling fund grow to $14 million. The stock market crash of 1929 almost slammed MFS with a knockout punch, as the fund lost 83% of its value. Yet it held strong, and by 1934, MFS was adding new mutual funds to the mix – and still does to this day.
Competition Among Other Mutual Funds
The Massachusetts Investors Fund wasn’t the only mutual fund as the 1920s rolled on with more investors intrigued by a new idea for market profit.
By 1925, another entrant into the mutual fund market – the Putnam Investors Fund – opened for business and in the ensuing years, a number of new mutual funds rolled out, each looking to harness the power of pooled investors to drive up the value of mutual funds, and bring new investors aboard in the process.
Here’s a list of the 10 oldest mutual funds, along with their year of entry.
|Fund Name||Year Started|
MFS Massachusetts Investors Fund
Putnam Investors Fund
Century Shares Fund
Vanguard Wellington Fund
CGM Mutual Fund
Dodge & Cox Balance Fund
Of those fund companies, Fidelity and MFS have enjoyed the most sustained success.
Fidelity Investments didn’t actually exist in 1930, the year the Fidelity Fund was introduced.
It wasn’t until 1943 when Edward C. Johnson II acquired the fund and placed it under the newly-named Fidelity Investments umbrella when the company officially launched in 1946. At the time, the Fidelity Fund only had $3 million in assets under management. Today, that same fund now has grown to $4.87 billion in assets under management.
MFS Investment Management, founder of the first-ever U.S. mutual fund, has approximately $476 billion in assets under management. The company was bought out by Sun Life Financial of Canada in 1982, which still owns the fund company today.
Headquartered in Boston, MFS is widely considered to be one of the longest-running success mutual fund success stories in the world – it’s now been in business for 96 years, with a 100-year anniversary coming up in 2024.
Both companies are good examples of companies that were present during the launch of the mutual fund era back in the 1920s, and that are still growing strong today.