Investing April 17, 2017

Net Deposits to Mutual Funds and ETPs Down in March

Passive strategies accounted for nearly all of March’s net inflows.
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Long-term mutual funds and exchange-traded products (ETPs) experienced net deposits of $75.4 billion in March, slightly down from the $79.4 billion in net new flows seen in February, according to Strategic Insight, parent company of PLANSPONSOR.

Passive strategies accounted for nearly all of March’s net new flows at $75.4 billion (including $44.2 billion to ETPs). Active long-term funds experienced $90 million in net outflows in March and $102 million in outflows over the first quarter.

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Taxable Bonds continued to experience the highest net deposits among long-term funds at $41.0 billion. Over the course of the first quarter, Taxable Bond funds garnered flows of $111.5 billion, while U.S. Equity funds and International Equity funds experienced net deposits of $45.8 billion and $47.7 billion, respectively. Tax-Free Bond funds experienced minor inflows of $1.2 billion in March.

International Equity funds took the lead among Equity funds in March with net flows of $17.3 billion against $15.1 billion raised in February. Domestic Equity funds experienced a decline in net new flows with $15.9 billion in March, from $24.5 billion in February.

Money Market funds saw stronger net redemptions in March ($19.2 billion) than they had in February ($2.1 billion). Taxable Money Market funds accounted for the greatest proportion of outflows at $18.9 billion, led by the $18.2 billion in net redemptions from government money market funds.

More about Strategic Insight is at www.sionline.com.

Investing April 17, 2017

Asset Managers Reacting to Passive Investing Shift

“Responses to the shift vary greatly, ranging from just hoping this trend changes to working to reduce their cost structure, with everything in-between,” TABB Group says.
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A new analysis published by TABB Group, “U.S. Institutional Equity Trading 2017: In the Eye of the Storm,” suggests there is a clear lack of preparation among some U.S. asset managers and their clients pertaining to shifts in the way institutions access and pay for investment products.

“The interview-based study of 95 head and senior traders of U.S. equity asset managers and hedge funds determined that over 95% of U.S. equity funds have been impacted by investors’ move from actively managed funds to passive strategies,” researchers explain. “The data shows a considerable number of managers both large and small do not have a strategy to counter this trend.”

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TABB Group reports a range in strategies/responses currently playing out among asset managers that formerly focused mainly or exclusively on active management: “Responses to the shift vary greatly, ranging from just hoping this trend changes (35% of total response) to working to reduce their cost structure (11%), with everything in-between.”

The research argues that a push for unbundled, open architecture products and services that shy away from active management is far from a U.S.-only phenomenon. In fact, “as the threat of passive investing hits fundamental institutional investors head on, U.S. active managers are also increasingly being dragged into the new European rules that force funds to restructure the way they obtain investment ideas and procure research.” Fully 76% of U.S. managers expect to be impacted by European unbundling rules, up from 66% a year ago.

One of the main challenges in this area, according to TABB Group analyst and report co-author Valerie Bogard, is that “virtually all larger funds” will need to “restructure the way they procure research” pertaining to the European market.

“Larger funds are more impacted and more prepared than smaller funds,” Bogard adds. “Many smaller funds have not even started analyzing the impact of unbundling on their business.”

Overall, TABB Group finds the combination of the move toward passive investing, unbundling, and low volatility has the U.S. equity institutional investor commission pool down 7.5% from 2015. This implies real and lasting consequences for investing providers and their clients.

The full analysis can be downloaded at https://research.tabbgroup.com/search/grid. 

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