Investing August 9, 2013

Funds Worldwide See $665B Inflow in 2013

August 9, 2013 (PLANSPONSOR.com) – During the first half of this year, investors globally contributed $665 billion of net inflows to funds worldwide excluding money markets.
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This was despite net redemptions towards the end of the second quarter, according to Strategic Insight (SI), an Asset International company. SI data shows outflows from long-term funds in June exceeded $120 billion worldwide, though this represented less than 0.5% of assets under management.

The majority of cash so far this year has gone into funds outside the U.S., which have collected $360 billion on a net basis. Nearly three-quarters of this amount was absorbed by funds in Europe, including cross-border UCITS [Undertakings for the Collective Investment of Transferable Securities] funds that are sold in markets worldwide.

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Bond fund net redemptions in European and cross-border international funds were found to have reached 1.7% of total assets during June, similar to the levels experienced in the United States. Equity funds, however, registered net redemptions of just 0.5% of assets. With stock markets recovering in July, cash flows should reveal an improvement. Historically, stock or bond fund redemptions driven by sharp price corrections have usually been limited in magnitude, short in duration and nonrecurring, SI said.

“The recent volatility will encourage investors and advisers to revisit their investment strategies, assess bond concentration risks and consider reallocation opportunities—especially into selected equity programs and other diversification options. Absolute return and alternative strategies should also benefit in the near term,” said Jag Alexeyev, head of global research at SI.

Demand in Europe and Asia will continue to revolve around the major themes of recent months but with some shift in emphasis, SI said. Income vehicles, multi-asset, flexible and unconstrained allocation, nontraditional strategies, risk control and managed volatility, target maturity, and outcome-oriented products recently powered the gains for asset managers and will remain in demand, but sales of equity funds will also likely expand over time.

Overall, the foundation of support for fund investments this year has been exceptionally strong, according to SI. Cash flows for some leading funds in the first quarter ran at more than double the monthly pace seen last year. Sales grew even farther in April and May for a few, and, even though June was a difficult month, flows in the second quarter were higher than the previous period for several flagship products.

Strategic Insight counts nearly 270 funds around the world that each captured at least $1 billion and as much as $13 billion during the first half of 2013.

Benefits August 9, 2013

Retirement Income View Brighter for Couples as a Unit

August 9, 2013 (PLANSPONSOR.com) – Pension plan participation is much higher among couples when they are viewed as a unit, rather than measured separately as married men and married women.
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According to an analysis by the Social Security Administration (SSA), participation rates in employer-provided pension plans were relatively constant in the time frame covered by the most recent analysis, between 1998 and 2009. Among all full-time workers, about two-thirds participated in a pension plan in both 1998 and 2009.

Unmarried workers, both men and women, were less likely to participate in a pension plan than were their married counterparts. About 72% of married men (with spouse present) working full-time participated in a retirement plan in 1998 and 2009. Similarly, 72% of married women (with spouse present) working full-time participated in a pension plan in 2009, an increase of about 5 percentage points from the 1998 participation level.

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However, the plan participation rate was found to be higher when looking at couples as a unit of analysis instead of just as married workers. Both in 1998 and 2009, about 80% of couples had at least one member participating in a pension plan, an increase of about 10 percentage points compared with looking at married men and married women separately.

What this suggests, said the SSA, is that previous studies have focused on married workers without considering coverage of their spouses. The SSA concluded that therefore these studies are likely to have underestimated the participation rate in pension or retirement plans from which the couples are expectedly going to draw their retirement income.

The analysis also found:

  • While about 30% of married men with their spouse present did not participate in a plan both in 1998 and 2009, when their spouses’ participation was factored in, only in 20% of couples did neither spouse participate in a pension plan;
  • In about 10% of couples in 2009, the wife was the only one participating in a pension plan compared with about 37% of couples where the husband was the only one participating;
  • 60% of couples in 2009 had at least one spouse contributing to a defined contribution (DC) plan. In half of those couples, the husband was the only one contributing; and
  • Among couples where both members contributed to a plan, the wife’s contribution composed around 42% of the total family contribution both in 1998 and 2009.

The SSA analysis used Survey of Income and Program Participation (SIPP) data from the U.S. Census Bureau, matched with Social Security administrative records, to examine participation in employer-provided retirement plans by plan type among couples where both spouses are present and the husband is a full-time wage and salary earner between ages 25 and 60. The analysis focused on measuring participation by specific plan type for married couples, rather than married workers separately, because couples were found to share their retirement income, regardless of whether those contributions are through the husband or the wife.

More information on the analysis can be found here.

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