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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 (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.

Total estimated inflows to long-term mutual funds were $4.96 billion for the week ending Wednesday, November 5, according to the Investment Company Institute (ICI). Investors poured $5.4 billion into bond funds, its largest intake since early May. Taxable Bond was responsible for the lion’s share of sales with $5.0 billion while Municipal Bond gathered $399 million. After two weeks of sales, Domestic Equity fell back into the red with $1.7 billion in net outflows. World Equity’s $1.4 billion intake was approximately $300 million shy of putting stock funds into positive territory. Hybrid funds also suffered redemptions with $186 million in net outflows.

Source: Investment Company Institute

Total estimated inflows to long-term mutual funds were $2.70 billion for the week ending Wednesday, October 29, according to the Investment Company Institute (ICI). All broad assets classes experienced inflows with the exception of Taxable Bond’s outflows of $295 million. Despite remaining in redemption mode, this was a vast improvement from the outflows experienced during the month, dropping to a low of $21.0 billion during the week ending October 1. World Equity led sales with $1.2 billion, presenting a 9.5% dip from sales gathered during the prior week. For the second consecutive week, Domestic Equity remained in the black with $1.1 billion in net flows. With $229 million in net flows, Municipal Bond’s intake was a 78% increase from sales gathered during the prior week. Finally, Hybrid funds managed to turn the redemption tides over the past three weeks by collecting $418 million in net inflows.

Source: Investment Company Institute

Total estimated outflows from long-term mutual funds were $11.51 billion for the week ending Wednesday, October 15, according to the Investment Company Institute (ICI). Amid fears about a slowdown in global economic growth, all broad categories experienced redemptions with the exception of Municipal Bond’s intake of $621 million. Domestic Equity and World Equity suffered $5.0 billion and $775 million in net outflows, respectively—the largest redemptions from stock funds since early July. For the third consecutive week, Taxable Bond remained in negative territory with $4.5 billion in net outflows. Investors pulled nearly $1.2 billion from Hybrid funds, representing its largest outflows since November 2012.

Source: Investment Company Institute

Total estimated outflows from long-term mutual funds were $2.70 billion for the week ending Wednesday, October 8, according to the Investment Company Institute (ICI). Taxable Bond continued in the red with $4.6 billion in net outflows. Investors pulled $21.0 billion during the prior week—the biggest outflows since late June 2013, with $28.1 billion amid fears that a pullback in the Fed’s bond-buying program would trigger higher interest rates. The most recent outflows are attributed to the surprise resignation of Bill Gross. PIMCO Total Return Fund suffered withdrawals of $23.5 billion in September. Meanwhile, World Equity led sales with $1.6 billion while Domestic Equity continued in negative territory with $533 million in net outflows. After eight consecutive weeks of inflows, Hybrid funds slipped into redemption mode with $40 million in net outflows.

Source: Investment Company Institute

Don't Miss This (10/14/14)
1) Investor Use of Advisors Inches Up in 2014, Survey Says
    Financial Advisor | 10/9/2014

Because… The increased use of advisors is positive news, but the disconnect between advisors and clients still exists in many different areas. If advisors can close the gap and obtain a better understanding of what’s on their clients’ minds, we believe more individuals will turn to advisors for financial advice. Sometimes advisors do not realize their clients’ views are different from theirs, so it is important for advisors to listen to investors’ needs and top concerns, provide specific guidance and feasible options, explain and justify recommendations, and ask for feedback.

2) Janus Capital Group Inc. Announces Agreement to Acquire Exchange Traded Product Provider VelocityShares
    Janus | 10/13/2014

Because… The acquisition is putting Janus, which has not had any ETFs in its product line, into the ETF game right away. As we have learned from past ETF deals, not all result in a success. Since VelocityShares teams up with white-label service providers such as ALPS and Exchange Traded Concepts, the value of exemptive relief is obviously not a consideration for the purchase. VelocityShares’ platform for innovative product solutions, its focus on institutional clients and other more sophisticated investors, and the expertise of its management team may be key factors behind the deal.

3) Fidelity's Abigail Johnson Gains CEO Title from Her Father
    Reuters | 10/13/2014

Because… The dust has finally settled as Fidelity put to rest the speculation about its leadership succession plan. While her experience of working in different divisions within the organization should ease her into the new role, Abby Johnson will still have a lot of work cut out for her. The investor shift to passively managed products, lagging performance of its actively managed mutual funds, substantial redemptions from retail investors, competition from other RIA custodians, and the consolidation of retirement plan recordkeepers are among the challenges she will face.

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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