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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. 

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Don't Miss This (2/24/15)
1) PwC Survey Finds 88% of Asset Management CEOs Are Confident of Revenue Growth in 2015
    PwC | 2/17/2015

Because… While the confidence from asset management company CEOs about revenue growth is encouraging, asset managers need to realize the revenue growth alone would not help them thrive in this highly competitive industry. Rising costs, the accelerated adoption of passively managed products, and the emergence of niche players trying to disrupt traditional business models may put pressure on profitability. Only firms that rigorously control costs, increase investments to boost brand awareness, and identify innovative product solutions that address specific market needs can be better positioned to achieve sustainable growth.

2) Paul McCulley Steps Down as Chief Economist
    PIMCO | 2/20/2015

Because…Paul McCulley’s departure after rejoining PIMCO for just 10 months is another high-profile exit after Mohamed El-Erian and Bill Gross. PIMCO hired Nobel Laureate Economist Michael Spence as a consultant on macroeconomic and global policy issues last October, Former White House Advisor Gene Sperling as consultant on U.S. economic policy issues in January, and most recently, Joachim Fels, former Chief Economist at Morgan Stanley, as Global Economic Advisor. With these appointments, the leave of McCulley may not put a dent in the management team’s pursuit of its strategic initiatives.

3) Pivotal 401(k) Fee Lawsuit in Front of Supreme Court Means Big Changes for Plan Advisers
    Investment News | 2/24/2015

Because… We have witnessed an increase of lawsuits related to 401(k) fees. Financial services providers should take on the responsibility of helping plan sponsors avoid such litigation. Best practices include informing plan sponsors of the availability of the least expensive investment options, keeping them abreast of any fee changes that occur to funds on a plan’s investment menu, fully disclosing plan fees to plan sponsors to ensure no surprise of hidden fees, and bringing them up to speed on the latest regulatory requirements.

Alternative products are all the rage and firms are racing to launch products in the space. However, launching alternative funds is typically more complicated than traditional funds.

In our just released Product Management & Development BenchMark Study, we devote an entire chapter to alternatives.  One of the topics addressed is the time required to launch an alternative fund.

Click HERE to hear Patrick Newcomb, Director of BenchMark Research at FUSE and study author, discuss the timeframe and challenges associated with launching alternative funds.

Time to Launch an Alternative Fund

Source: FUSE Product Management & Development BenchMark Survey 2014

Don't Miss This (2/17/15)
1) TIAA-CREF Survey: Americans Want Monthly Retirement Paycheck But Don’t Know How to Get It
    TIAA-CREF | 2/3/2015

Because… The TIAA-CREF survey underlines a pressing need for more investor education about retirement income options. Plan sponsors’ reluctance to add in-plan retirement income options and fund firms’ inability to penetrate the market with effective retirement income products are part of the reasons for investors’ lack of adequate knowledge. It’s time for financial services firms, including asset managers, insurers, plan consultants, and financial advisors, to work together and share the responsibility of informing Americans of available choices in the marketplace, as well as the pros and cons of retirement income solutions.

2) American Funds to Get Approval to Offer ETFs
    Investment News | 2/4/2015

Because… American Funds is the only asset manager among the top three with no ETF exposure. Although we do not expect the firm to launch ETFs any time soon, the move is commendable because it shows the firm’s willingness to respond to evolving industry dynamics. Sales of American Funds turned to a positive $345 million in 2014, a significant improvement from net outflows of $19 billion in 2013. In comparison, Vanguard raked in $219 billion in 2014, with more than one-third of flows into its ETFs. By providing vehicle-agnostic solutions, American Funds would be in a better position to retain clients and maintain its leading position.

3) BlackRock’s Bonds ETFs Raked in Record Sums of Money
    Bloomberg | 2/17/2015

Because… iShares bond ETFs are not the only beneficiary of investors’ unprecedented exodus from PIMCO Total Return Fund. Four actively managed funds among the industry’s top 10 sellers in January were all bond funds. Metropolitan West Total Return Bond Fund (Intermediate-Term Bond), DoubleLine Total Return Bond Fund (Intermediate-Term Bond), BlackRock Strategic Income Opportunities Fund (Nontraditional Bond), and Dodge & Cox Income Fund (Intermediate-Term Bond) absorbed $5.2 billion, $2.6 billion, $2 billion, and $1.8 billion, respectively. Their combined inflows of $11.6 billion represented 41% of total long-term fund sales in the month. Asset managers without strong fixed-income offerings are missing an opportunity to capitalize on investor asset reallocation.

Total estimated inflows into long-term mutual funds were $8.27 billion for the week ended Wednesday, February 4, according to the Investment Company Institute (ICI). For the fourth consecutive week, stocks stayed in positive territory with Domestic Equity garnering $3.5 billion and World Equity $704 million. Investors placed $2.3 billion in Taxable Bond and $963 million in Municipal Bond. Finally, Hybrid funds collected $792 million, representing its fourth straight week in the black.

Source: Investment Company Institute

Total estimated inflows into long-term mutual funds were $12.17 billion for the week ended Wednesday, January 28, according to the Investment Company Institute (ICI). This is a dramatic uptick from the $3.3 billion gathered during the prior week. Bond funds collected $6.1 billion, its largest total since May 2013. Taxable Bond was responsible for $4.8 billion in net inflows while Municipal Bond gathered $1.3 billion. This is partly attributed to the European Central Bank’s bond-buying program announced on January 22, which will keep rates lower in Europe and also make U.S. Treasuries more appealing than European bonds. Investors poured $3.5 billion into Domestic Equity—its largest intake since October. For the fourth consecutive week, World Equity stayed in positive territory with $888 million in net inflows. Hybrid funds more than doubled its sales from the prior week with $1.7 billion in net inflows.

Source: Investment Company Institute

Source: Morningstar

A recent article discussed how iShares had recently raised the bar for viability by liquidating several funds with higher net assets than 50% of ETFs on the market.* Digging into the data reveals a couple of key points that need to be highlighted. First, of the four funds liquidated in 2014 with AUM over $50 million, three were defined maturity products with required liquidations in 2014. Second, of the next eight liquidated funds with AUM between $25 and 50 million, six were part of iShares target-date ETF series and should likely be viewed as a single event in which the average AUM across the series was just north of $25 million. When these are taken into account, ETF liquidations are in line or even below asset levels associated with typical fund liquidations, with only a few products above $10 million being liquidated.

*ETF Daily News, "iShares Raises The Bar On ETF Survivability", October 14, 2014

Total estimated inflows into long-term mutual funds were $3.05 billion for the week ended Wednesday, January 21, according to the Investment Company Institute (ICI). This represents the second consecutive week of cumulative inflows, yet a 45.3% decline from the prior week’s intake of $5.6 billion. After nine weeks of withdrawals, investors put $856 million into Domestic Equity funds. World Equity gathered $288 million, a sharp decrease from the $1.8 billion collected during the prior week. Municipal Bond led all broad asset classes with $1.0 billion in net inflows while Taxable Bond garnered $77 million. Hybrid funds posted its second consecutive week in positive territory with $790 million in net inflows.

Source: Investment Company Institute (ICI) 

Source: Morningstar Direct

2014 showed a continuing increase of the number of new funds being opened after the high in 2011 of 786 new funds, with 725 funds being brought to market. Open-End funds had 520 new funds added, and there were 205 new Exchange-Traded Funds over the year. The U.S. category with the most funds added for Open-End Funds in 2014 was Allocation with 117 new funds, while International Equity had the most funds added at 80 new funds for Exchange-Traded Funds. 

fuse survey
Currently, passive strategies account for 23.8% of mutual fund and ETFs assets under management. What will that number be in five years? 25%
Greater than 40%

General Membership Meeting
- 5.01.13
Mutual Funds and Investment Mangement Conference
- 3.17.13

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