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John Bogle on Investing: The First 50 Years by John C. Bogle

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ChapterII

AS A REPOSITORY FOR TRUST AND PENSION FUNDS

ALTHOUGH THE mutual fund's potentialities in the field of institutional investment have not been realized to their optimum, it has been reticence on the part of the fiduciaries and restriction by state law which have in many cases limited the potential, rather than any specific inadequacies on the part of the investment companies themselves. There has been limited use of investment company shares by institutions, however, and recent trade estimates place institutional holders as owners of some 7% of all mutual fund shares.

The basic problem for institutional investors is to provide a reasonable income for their beneficiaries without sacrificing the security of principal. In past years, this has been accomplished largely with the use of high-grade corporate and government bonds, which were expected to provide the most efficient accomplishment of these objectives. However, such has not proved to be the case. Over a span of the past twenty-five years, two factors have decreased the attractiveness of bonds: the yield has fallen from 5% to 2.5%;1 and the purchasing power of the dollar has fallen to $0.75. The percentage yield to the institutional investor's beneficiaries, therefore, is decreased by 50%, and that decrease is accentuated by an additional 25% in real terms, because of the inflation of consumer goods prices.

TABLE XVII Institutional Investors in Selected Funds

Fortunately for the institutional investor, however, ...

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