Investment Adviser Association | 6/28/2021
Because… The joint study by the Investment Adviser Association (IAA) and National Regulatory Services found that 87.9% of SEC-registered advisers employed 50 or fewer people with the median investment adviser having only eight employees. About 88.5% of investment advisers have less than $5 billion in assets under management, although 92.0% of industry assets are managed by firms with assets under management above $5 billion. Small advisory firms are facing many challenges. They typically lack the technological infrastructure to improve operational efficiencies. Some firms are eager to expand into other service areas, such as financial planning, but neglect to strengthen their investment management capabilities along the way. The inability to provide training programs to attract diverse talent also hinders their growth. A recent FlexShares survey showed that “consumers increasingly prefer having a financial advisor of the same racial, gender and age profile as their own.” They are more likely to find an advisor of a similar profile at a large firm.
SEC Filings | 6/30/2021
Because… Small cap stocks have been outshining their large cap and mid-cap counterparts. S&P 600 Index gained 64.50% for one year ending July 7, beating S&P 500’s 38.56% and S&P 400’s 52.18% by a wide margin. According to the Wall Street Journal’s quote of Dow Jones Market Data, the index of small-cap stocks ended June with its ninth consecutive month of gains, its longest monthly winning streak since at least December 1986. In the mutual fund space, Small Value gathered $2.2 billion this year through May, compared with Small Growth’s inflows of $184 million and Small Blend’s outflows of $245 million. These were substantial improvements from last year when their redemptions ranged from $4.9 billion to $18.5 billion. Small cap ETFs also generated better sales this year with Small Blend leading with $10.0 billion. Small Value’s sales of $8.4 billion more than doubled its 2020 intake of $3.3 billion. The small cap rally, investors’ preference for ETFs, and relatively less competition could impel more fund firms to wade into the small cap ETF arena.
HSBC | 6/30/2021
Because… We commend HSBC’s effort to promote diversity and inclusion. According to Citywire’s 2020 Alpha Female Report, only 2% of all funds in the U.S. are run solely by a woman or a team of women. Mixed-gender teams run 19% of funds, while 79% are managed by men. In total, just 9% of U.S. mutual fund managers are women, a figure that has not increased over the years. Morningstar research reached a similar conclusion. While asset management firms should play a more supportive role, women professionals should also realize that the industry is largely merit-based. The gender of a fund manager is normally not a factor for advisors and individual investors to consider. Few people heard of Cathie Wood a couple of years ago. But when five out of six of her ETFs posted triple-digit returns in 2020, she became a rock star stock picker. She attracted a lot of followers and investors swarmed into her funds. Therefore, for female portfolio managers, establishing a solid track record and building a reputation is a sure way to stand out from peers.