Amid brutal market action and investor redemptions last year, total assets under management by US mutual funds shrank 35 percent to $5.13 trillion. Fidelity Investments, one of the leading mutual fund managers in the country, was the worst hit as investors pulled more than $40 billion from its stock and bond funds. Assets under management at Franklin Resources and Legg Mason also took hits, declining by $21.5 billion and $21 billion, respectively. Together, the three companies accounted for 43 percent of the record $194 billion in withdrawals.

As plunging assets under management have cut into fee income, job cuts have continued apace, primarily among back-end support positions. Fund management teams have largely been spared from the carnage, but if 2008 was the year of fund re-openings, 2009 could be the year of fund consolidations if the markets don’t improve markedly.

Many families offer funds with high degrees of overlap in mission and mandate, which could force fund mergers to better realize economies of scale by reducing staff.

Two developments could revolutionize the mutual fund industry, one for the better and one for the worse. Putnam Investments launched a line of target funds that aim to produce set returns on an annualized basis, rather than focusing on target dates. Putnam hopes its Absolute Target Return funds will generate 1, 3, 5 or 7 percent returns over and above the Merrill Lynch US Treasury Bill Index.

The four offerings will be run as funds-of-funds. Utilizing other funds offered by Putnam, they’ll essentially have go-anywhere mandates with a high degree of flexibility. The funds will be managed based on strategies Putnam has been using in some of its institutional products for the past decade.

These strategies, commonly used in hedge funds, might not translate into the more closely regulated mutual fund industry. But these could be attractive options for investors, particularly those nearing retirement.

And Grail Advisors is launching two actively managed exchange traded funds (ETF). The funds will be managed along the lines of two open-ended mutual funds that have been around for years and will share the same management teams.

The launch of actively managed ETFs has long been dogged by disclosure issues, with regulators typically demanding a higher degree of transparency than managers care to offer. The greater the disclosure, the greater the risk that other investors may try to piggyback on the firm’s trading strategy. Despite that, Grail has agreed to disclose its holdings on its website on a daily basis.

These offerings they will face the same pricing problems as other ETFs and closed-end funds, including the risk that they’ll trade at premiums or discounts to net asset values.

Vanguard Growth Equity (VGEQX) has jettisoned longtime subadvisor Turner Investment Partners in favor of Jennison Associates, which will oversee half of the fund’s $505 million in assets. The Scottish firm Baillie Gifford will manage the other half. Jennison has assigned Kathleen McCarragher, who successfully co-managed Vanguard Morgan Growth (VMRGX) and Jennison Growth (PJFAX), to run its portion. The fund’s expense ratio will decline from 0.72 percent to 0.60 percent, and the new manager’s buy-and-hold strategy and emphasis on fundamentals should generate more stable results than Turner’s more aggressive investment style.

What happens when a fund manager somehow contrives to own shares of AIG, Fannie Mae, Freddie Mac, Washington Mutual and Wachovia? These institutions may have been absorbed by stronger companies or propped up by the US government, but there was no such respite for Tim Cohen, the now former manager of Fidelity Growth & Income (FGRIX). Jim Catudal, who has managed Fidelity Stock Selector (FDSSX) since 2001, recently assumed the helm and is charged with righting the ship.