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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 (12/16/14)
1) Putnam Investments to Help Patriots Fans Show the World Their Game Face
    Putnam | 12/12/2014

Because… With the #1 ranking in the AFC East, the New England Patriots have a lot of loyal fans. Putnam’s use of innovative technology and integration with social media should be able to help the firm raise its profile and forge a stronger relationship with fans. More financial firms are using sports sponsorship as an effective marketing strategy. Putnam has set an exemplary example for other asset managers in terms of how to select sports team partners and how to form a long-lasting bond with fans and eventually turn fans into its advocates.

2) Goldman Plans Smart Beta | 12/15/2014

Because… Smart beta strategies are apparently gathering steam. According to a BlackRock global ETP report released today, assets for smart beta equity ETPs have quadrupled since 2008. Morningstar data also show their popularity - smart beta ETFs accounted for 26.7% of ETF net flows this year through November. Goldman Sachs, which reportedly bid for alternative ETF sponsor IndexIQ, is now turning to its in-house teams and newly acquired Westpeak for fund management. The success of these funds will be determined by key factors selected to capture market beta, the funds’ expense ratios, and educational efforts provided to the investing public.

3) Prudential Retirement Creates Gibraltar Ventures
    Prudential | 12/15/2014

Because… Like Prudential, Wells Fargo launched Wells Fargo Investment Institute at the beginning of the month. Thought leadership has increasingly become a marketing tool for financial services firms to build credibility, enhance reputation, generate leads, and drive business. When developing thought leadership initiatives, a targeted and focused strategy that addresses distinct investor concerns can help a firm establish authority in certain topical areas. We believe Prudential Retirement, already one of the leading recordkeepers, will be able to provide more practical value through the creation of the new organization.

Total estimated outflows from long-term mutual funds were $3.19 billion for the eight-day period ended Wednesday, December 3, according to the Investment Company Institute (ICI). Stocks suffered nearly $2.7 billion in redemptions, experiencing the worst three-week losses since July. Investors pulled approximately $3.0 billion from Domestic Equity while World Equity only managed to gather $271 million. Taxable Bond fell into the red with $667 million in net outflows, and Municipal Bond captured $841 million. Hybrid funds suffered its second consecutive week in negative territory with $681 million in net outflows.

Source: Investment Company Institute

Don't Miss This (12/9/14)
1) SEI Year-End Survey: Advisors Believe in The Bull Market for 2015
    SEI | 12/3/2014

Because… Knowing advisors’ views on the market movement and their business priorities helps asset management firms craft more effective strategies to serve their clients. While it’s the time of the year for asset managers to release their market outlook for the next year, firms need to place special emphasis on certain issues investors and their advisors care about most, such as sector allocation, major risks in different markets, and prospects of alternative investments.

2) Unconstrained Bond Funds Disappoint
    Investment News | 12/5/2014

Because… A growing number of asset managers have offered unconstrained bond funds in the past couple of years. Investors exposed to these funds would find their lagging performance discouraging. This year through the end of October, investors added more than $11 billion to each of the two biggest unconstrained bond funds (Goldman Sachs Strategic Income Fund and BlackRock Strategic Income Opportunities Fund), which suggests the popularity of this type of funds. However, if these funds do not live up to the investor expectations, they could lose their appeal gradually.

3) Morningstar Launches Family of More Than 60 New Global Equity Indexes, Providing Investors with Comprehensive View of Worldwide Markets
    Morningstar | 12/8/2014

Because… The Morningtar global equity index family covers 21 regional markets as well as 45 individual countries. On the one hand, these indexes will provide investors and asset managers with new benchmarking tools. On the other hand, they will have to compete with more established global equity indexes from MSCI, S&P, and FTSE if Morningstar wants to win more licensing business. The index provider has to demonstrate its comparative advantages in terms of the soundness of index construction rules, the coherence of country inclusion, and the reliability of the weighting methodology.

Total estimated inflows to long-term mutual funds were $1.26 billion for the six-day period ending Tuesday, November 25, according to the Investment Company Institute (ICI). Investors continued to pull money from Domestic Equity funds, which suffered $2.0 billion in redemptions. Meanwhile, World Equity continued in positive territory with $869 million in net inflows, representing a 42% increase from its total during the prior week. Taxable Bond continued to drive sales with $1.8 billion in net inflows while Municipal Bond gathered $769 million in net inflows. After two weeks of inflows, Hybrid funds fell back into redemption mode with $157 million in net outflows.

Source: Investment Company Institute

Don't Miss This (12/2/14)
1) Mutual Funds to Face New Rules as SEC Outlines Oversight Plan
    Bloomberg | 11/24/2014

Because… Even though the mutual fund industry is already strictly regulated, the SEC is taking additional steps to strengthen its mutual fund oversight. With the prevalence of alternative investments, investor concerns about liquidity and leverage have grown correspondingly. The enhanced scrutiny is aimed at ensuring market stability and protecting investors from unnecessary risks. Asset managers, for their part, should have streamlined compliance procedures in place, examine their valuation approaches for hard-to-sell investments, and proactively increase the disclosure of portfolio holdings to gain investor trust.

2) Russell Sets Orderly Schedule to Close the Russell Equity ETF
    Russell | 11/25/2014

Because… The Equity ETF (ONEF) was the lone survivor when Russell shuttered its index ETFs two years ago. While the liquidation of the firm’s last U.S.-based ETF is disappointing, it is not unforeseen. We cast doubt upon the fund’s chance of success ever since it was brought to the market by its original sponsor, U.S. One. The fund, with assets of $7.4 million as of 12/1/14, underperformed its benchmark index for all YTD, 1-year, and 3-year periods. The subpar performance, the higher expense ratio resulted from its fund-of-funds structure, and the lack of an effective distribution platform put the fund into a disadvantageous position.

3) Catalyst Funds Converts Third Hedge Fund to Mutual Fund
    DailyAlts | 11/25/2014

Because… The conversion of a hedge fund into a mutual fund is not common, but Catalyst is not the first firm that has done this. We suppose the strategy may exemplify a future trend that hedge fund and mutual fund industries cannot ignore. Some hedge managers with shrunken assets now realize they do not have to throw the baby out with the bath water. They can keep the investment strategy intact and wrap it in a ’40 Act mutual fund. The conversion allows them not only to survive in a more competitive industry, but also to concentrate on portfolio management as a sub-advisor, as in this case, without worrying about fund distribution.

Don't Miss This (11/25/14)
1) Most U.S. Employers See Retirement Readiness as a Significant Issue for Employees, Towers Watson Survey Finds
    Towers Watson | 11/19/2014

Because… The Towers Watson survey reinforces the importance of helping employees prepare for retirement. In addition to developing educational programs that enhance investor knowledge and boost their confidence, financial services firms can also motivate people to save more aggressively by taking advantage of behavioral finance. Since an individual’s retirement savings behavior is often influenced by his/her peers, firms can mine the plan-specific data and share investors’ success stories with plan participants. Peer comparisons can usually drive people to take positive plan actions.

2) American Beacon Advisors Reaches Agreement to Be Acquired by Kelso & Company and Estancia Capital Management
    American Beacon | 11/20/2014

Because… The deal indicates the transfer of ownership from one pair of private equity firms to another, so we do not expect any operational disruption at American Beacon. Private equity-backed firms are not uncommon in the asset management industry. On the one hand, this ownership structure can support business growth and relieve short-term pressures from public shareholders. On the other hand, private equity firms’ strong emphasis on financial results could result in job elimination, and the use of leverage to finance buyouts means that their subsidiary’s access to human and financial resources could be limited.

3) John Hancock Advocates for Liquid Alts in DC Plans
    DailyAlts | 11/24/2014

Because… Both John Hancock and BNY Mellon have just published white papers to promote liquid alternatives in DC plans. From the offering of stock, bond, and balanced funds, to the addition of emerging markets, real estate, and inflation-protected funds, the DC market has evolved to include a wide range of investment products. The adoption of alternatives will be determined by plan sponsors’ shift in mindset from traditional to alternative investments; however, the need for more education, the lack of established track records, and regulatory concerns may prevent DC plans from significantly increasing the use of alternatives.

Total estimated inflows to long-term mutual funds were $6.26 billion for the week ending Wednesday, November 12, according to the Investment Company Institute (ICI), marking the fourth consecutive week of overall inflows. All broad asset categories gathered sales with Taxable Bond leading the pack with $2.8 billion in net inflows. Municipal Bond collected $893 million in net inflows, representing a 41% increase from its intake during the prior week. World Equity garnered nearly $1.4 billion while its Domestic counterpart managed to collect $193 million, a significant turnabout from the $1.7 billion in redemptions during the prior week. Hybrid funds also rebounded from the prior week with $963 million in net inflows compared with $176 in net outflows.

Source: Investment Company Institute

Don't Miss This (11/18/14)
1) TCW's MetWest Unit Posts $9 Billion Inflows Since Exit of Pimco's Gross: Morningstar
    Reuters | 11/06/2014

Because… Metropolitan West Total Return Bond Fund was the industry’s top seller in October (including all long-term mutual funds and ETFs) with a net intake of $6.7 billion. Vanguard Total Bond Market Index Fund, Dodge & Cox Income Fund, BlackRock Strategic Income Opportunities Fund, iShares Core US Aggregate Bond ETF, and DoubleLine Total Return Bond were the other bond funds that garnered more than $2 billion in the month. These funds, either actively managed with solid consistent performance or passively managed, should be well-positioned to continue to reap the benefit from Gross’ departure in the rest of the year.

2) AQR to Unveil Four Tax-Managed Multi-Style Funds
    SEC Filings | 11/14/2014

Because… Many people do not realize the direct impact of tax management until they see the amount they have to pay the government. Investors have been wooing dividend-paying funds in the current low rate environment, but any potential tax rate hikes will take a big bite out of the dividend income and make dividends less appealing. When bringing new tax-managed funds to the marketplace, fund firms should educate investors by illustrating the tax impact on portfolio returns and demonstrating how their portfolio managers incorporate taxes into their investment process.

3) PIMCO’s Enhanced Short Maturity Active ETF Reaches Five Year Anniversary
    PIMCO | 11/17/2014

Because… The 5-year-old ETF, better known as MINT, is the largest actively managed ETF. Following its launch, five other ETF sponsors (iShares, SSgA, Northern Funds, First Trust, and AdvisorShares) introduced MINT-like, ultra-short bond ETFs, but none of them has gathered assets close to those poured into MINT. However, the fund was hit by net redemptions of $163.6 million this year through September after absorbing $1.7 billion in 2013. We expect more asset managers looking to break into the actively managed ETF space to seek opportunities in this arena, but the MINT’s dominance will not fade away in the near future.

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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