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Q: What technologies are having the greatest impact on sales and distribution?
A: Given the magnitude that technology continues to play within the financial services industry, FUSE fielded a survey earlier this year to specifically determine the technological impact on the sales process of investment products. Survey respondents rated how certain technologies will impact sales and distribution over the next three years. On average, survey respondents stated that tablets would have the most impact on sales over the next few years. In fact, nearly 30% said they will change the face of sales forever. More than half (57%) of survey respondents provide tablets to sales/distribution personnel. Also, larger firms have adopted the use of tablets at a faster pace than smaller firms, in addition to firms with a retail focus compared to firms with an institutional focus. Cloud computing was ranked second for having the greatest impact on sales and distribution over the next three years. Cloud computing has become an emerging theme that is gaining investor attention. Forrester Research projected total public cloud revenues to rise 27% annually to nearly $160 billion in 2020, up from $15 billion in 2010. IDC also predicted that while global IT spending increased by 6% in 2011, spending on public cloud computing services will grow five times faster.
Q: Will the ETF industry maintain its momentum moving forward?
A: We do see ample opportunities for the industry to expand; however, the pace at which ETFs are bringing in new assets is no longer growing at the clip that we’ve seen in past years. In fact, AllianceBernstein recently forecasted that the $1.1 trillion U.S. ETF market will grow by a compounded annual rate of 13%, hitting $6 trillion by 2025, far below expectations of a $10 trillion industry by 2025. In terms of actively managed ETFs, the industry hit a recent roadblock with the SEC’s rejection of Huntington’s request to convert an open-end fund to an ETF. Had Huntington received the green light, we expected other firms to follow its lead. As noted in Barron’s, Citigroup reported that it is getting more difficult for new fund companies to stand out. The ETF industry remains highly concentrated—the top 10 ETF providers account for 95% of AUM. Also, the article highlights that new products account for 2% of industry ETF growth so far this year, down from 6.4% last year.
1) Wells Fargo Survey: Affluent Investors Feeling Good on Financial Health; Yet More than Half Worry about Losing Money in the Market
Wells Fargo | 7/15/2015
Because… While it is natural for affluent investors to be concerned about losing money, financial firms need to help them boost confidence in the market. Often the worry is caused by ignorance. A lot of investors still remember the severity of the financial crisis without realizing that the S&P 500 Index, which generally represents the broad stock market, produced double-digit gains in five of the past six years since 2009. Asset management firms should also introduce what risk control mechanisms are put in place and how they mitigate market volatility to alleviate investor concerns.
2) Ivy to Introduce Two Sub-Advised Funds
SEC Filings | 7/17/2015
Because… Partnerships between traditional and alternative asset managers have become increasingly common. TCW just launched its first alternative mutual fund a week ago sub-advised by Gargoyle Investment Advisor, an options-based hedged fund manager. Both sides should be able to reap benefits from such an alliance. Traditional asset managers can leverage alternative managers’ expertise and quickly establish a foothold in the alternative investment space without developing in-house capabilities. On the other hand, alternative asset managers can remain focusing on their core strength without worrying about operational, marketing, and distribution issues.
3) Multi-Manager TDFs: The Future or a Pipedream?
NAPA | 7/20/2015
Because… The use of multiple managers makes a strong case because no investment firm can excel in all asset classes. Open architecture removes conflict of interest, as it takes financial incentives of underlying funds out of the asset allocation process and ensures that asset allocation decisions align with plan demographics. Engaging multiple external managers also fosters competition among investment firms, which should benefit plan sponsors and ultimately participants. However, the cost of hiring external managers may drive fund expense ratios higher.
Total estimated outflows from long-term mutual funds were $1.07 billion for the week ended Wednesday, July 8, according to the Investment Company Institute (ICI). World Equity was the only broad asset class to rake in sales, with $4.6 billion in net inflows. Investors pulled $2.4 billion from Domestic Equity, but this was an improvement from the $5.5 billion in net outflows during the prior week. Taxable Bond suffered $2.9 billion in redemptions while its Municipal counterpart witnessed $287 million in net outflows. Hybrid funds remained in negative territory with $10 million in net outflows, somewhat of a recovery from the $523 million in redemptions from the prior week.
Source: Investment Company Institute
1) Wealthfront Sparks Robo Price War, Drops Account Minimum to $500
Investment News | 7/8/2015
Because… While the drop of the account minimum from $5,000 to $500 may appeal to mom-and-pop investors, it may not benefit the firm in the long run. Morningstar research
shows that digital investment platforms with human advisors bring in account balances 10 times higher on average than regular robo-advisors. The lower fees than those charged by human advisors, along with lower account minimums, indicate robo-advisors would need more time to be economically viable. An initiative like this may bring attention to the competition, but robo-advisors could gradually lose financial backing from venture capitalists if they fail to generate profitability as expected.
2) John Hancock Investments Selects Dimensional Fund Advisors to Manage Suite of Multifactor ETFs
PR Newswire | 7/13/2015
Because…The partnership represents both firms’ first foray into the ETF space. John Hancock ranked #17 for net sales in 2014 among all long-term mutual fund and ETF managers. Moving up the ranks is not impossible as John Hancock is not far behind some of those with a better ranking. We expect the launch of ETFs to attract substantial investor attention because of DFA’s reputation as an enhanced index provider and its solid relationships with loyal advisors. John Hancock’s own powerful distribution network will also help bring the new funds to a wide range of audiences.
3) Mobius to Step Down as Lead Manager of Templeton Emerging Trust
Bloomberg | 7/13/2015
Because… The resignation of Mark Mobius is worth mentioning because of his influence as a pioneer in emerging market investing. Star managers are currently few and far between, and the investment industry has become accustomed to the team approach instead of betting on the star clout. For fund firms, keeping the manager succession process transparent, ensuring investors understand the reason for the change, and providing adequate product support may alleviate investor concerns and retain existing shareholders. Since Mark Mobius still carries a strong social media following, having him continue sharing his insights and perspectives may help the firm maintain visibility during the transition period.
Total estimated outflows from long-term mutual funds were $6.37 billion for the week ended Wednesday, July 1, according to the Investment Company Institute (ICI). Amid concerns of a Greek exit from the euro zone, all broad asset classes experienced redemptions with the exception of World Equity. With nearly $2.1 billion in net inflows, World Equity has remained in positive territory throughout every week of 2015. On the other hand, investors pulled $5.5 billion from Domestic Equity—marking their largest outflows in nine weeks. Taxable Bond suffered $1.5 billion in net outflows after raking in $16.8 billion during the prior week. However, this record inflow was primarily the result of fund companies converting non-1940 Act products into mutual funds. Municipal Bond fell into the red with $861 million in net outflows during the week. Finally, Hybrid funds bled $525 million in redemptions, representing its largest outflows since the first week of January.
Source: Investment Company Institute
1) Alternative Asset Management 2020: Fast Forward to Center Stage
PwC | 6/29/2015
Because… Fund firms need to take notice that alternative investments in the PwC report refer primarily to private equity, real assets, hedge funds, and funds of hedge funds. For liquid alternative mutual funds, PwC estimates the demand to surge from $260 billion at the end of 2013 to around $664 billion by 2020. Since many liquid alternative funds have not proved their ability to deliver upside potential in a bull market and downside protection in a bear market, alternative fund managers should focus on strategies with more robust risk control and alpha-capture methodologies in order to satisfy the increasing market demand.
2) Midyear ETF Flows Set New Record Of $101B
ETF.com | 7/1/2015
Because… The net flows of $101 billion into ETFs represent an increase of 37% from the first half of 2014. Morningstar data also shows 132 ETFs were launched in the first six months, 45% more than the 91 funds introduced last year through June. The strong sales and accelerated product development indicate that while the industry is still riding on a high growth trajectory, differentiating products to stand out from the competition will become much more difficult than ever before. ETF sponsors should expand their lineups at a measured pace without being swayed by short-term investor sentiment.
3) iShares Launches 11 Currency Hedged Funds
iShares | 7/1/2015
Because… Currency hedging has generated substantial investor interest lately. Two top-selling ETFs in the first half of the year both employ currency-hedged strategies. WisdomTree Europe Hedged Equity ETF and Deutsche X-trackers MSCI EAFE Hedged Equity ETF garnered $14 billion and $10.5 billion, respectively, this year through June, accounting for a combined 24% of the total ETF flows. Fund firms with currency-hedged products need to explain the potential benefits of hedging, the hedging mechanism put in place, and factors that drive portfolio managers to hedge the exposure of underlying currencies.
1) Retirement Assets Total $24.9 Trillion in First Quarter 2015
ICI | 6/24/2015
Because… IRAs accounted for 30.6% of total retirement assets, remaining the plan type with the most assets. Although DC plans’ market share stood at 27.4% at the end of the first quarter, its market share grew 0.6% from a year ago. In comparison, IRAs witnessed a market share increase of 0.4% during the same 12-month period. IRA assets rose 7.3% over the past year, also slower than the asset growth of 8.3% in DC plans. If DC plan assets continue to expand at a faster pace, the current 3.2% market share gap could be closed in the not-too-distant future.
2) OneAmerica to Acquire BMO's U.S. Retirement Services Business
BMO | 6/26/2015
Because… The deal, which is OneAmerica’s largest acquisition, will be a boon to the firm as BMO Retirement Services received the top ranking in PLANSPONSOR’s 401(k) DC Survey for the eighth year in a row. Meanwhile, the sale shows BMO’s determination to focus on asset management. BMO garnered $1 billion of retail mutual fund assets in 2014, a significant improvement from a mere $167 million of inflows in 2013. The 20% asset growth within a year and strong flows indicate BMO’s efforts of establishing a greater presence in the U.S. fund market are starting to take shape.
3) Closing Greece’s Exchange Puts Focus on ETFs Without Prices
Bloomberg | 6/28/2015
Because… With the DJIA down 350 points amid Greek tumult yesterday, ETF shareholders are not the only ones concerned about their investments. Russell’s investment strategists noted in their global outlook for the third quarter published today that the Greek bailout is one of the two key looming events. To alleviate investor worry, fund firms should reach out to shareholders and inform them of their actual exposure to Greece. Portfolio management teams should make their assessment of the potential impact known to the public. Having fund managers and in-house economists available online for questions would also help investors gain confidence in their ability to navigate difficult times.
Total estimated outflows from long-term mutual funds were $3.91 billion for the week ended Wednesday, June 17, according to the Investment Company Institute (ICI). All broad asset classes experienced redemptions with the exception of World Equity, which collected nearly $3.7 billion in net inflows. For the 16th consecutive week, Domestic Equity remained in the red as investors pulled $3.5 billion from these funds. With $4.1 billion in net outflows, bond funds suffered its largest redemptions since mid-December with $3.6 billion flowing out of Taxable Bond and $536 million from Municipal Bond. Hybrid funds slipped into the red with $55 million in net outflows.
Source: Investment Company Institute
1) Pensionmark Introduces Custom TDFs
Plansponsor | 6/16/2015
Because… The trend towards custom strategies is inevitable, especially for large DC plans, and it will eventually benefit both plan participants and investment management firms that are not recordkeepers. With customized offerings, plan sponsors can blend active and passive investments, add alternative asset classes that are not commonly available in target-date mutual funds, and adjust risk parameters if a pension plan is also offered. Plan sponsors also have the flexibility of selecting top investment managers for different asset classes. However, plan sponsors have to take addition fees into consideration, such as consulting fees, recordkeeping fees, trustee fees, legal fees, and costs associated with developing and continuously monitoring the portfolio.
2) Most Investors Likely to Use Robo-advice: Survey
Investment News | 6/18/2015
Because… The projection that “the percentage of total investable assets that robo-advisory services manage will jump to 5.6% in 2020 from 0.5% today” seems optimistic if only robo startups were included. While robo-advisors may change the wealth management landscape, we do not expect them to overtake traditional wealth managers in the near future. First, the awareness of robo-advisory services is still low among the general public. Second, investors still need personalized guidance that cannot be provided by online platforms. Third, robo-like offerings from financial giants such as Schwab and Vanguard may slow down the rapid growth of robo-advisors.
3) Goldman Sachs Hires iShares Veteran Tony Kelly for ETF Business
Bloomberg | 6/19/2015
Because… The hire of an iShares veteran, after shifting Michael Crinieri’s responsibility from trading to ETF product development and distribution last July, is another personnel move that shows the firm’s commitment to the ETF effort. Goldman Sachs Strategic Income Fund, the top seller in 2014 and 2013 which garnered 76% and 78% of the firm’s total sales, respectively, lost its momentum with net redemptions of $3 billion this year through May. With the filing of 11 ETFs last December that included 6 ActiveBeta equity ETFs and 5 hedge fund trackers, Goldman Sachs expects to build its ETF business to help retain existing clients and attract new investors.
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