1) Even Fidelity’s $230 Billion Star Manager Has Robinhood Anxiety
Bloomberg | 9/17/2020
Because… We too are often puzzled by redemptions from mutual funds with robust track records. This year through August, mutual funds suffered net outflows of $284 billion. All asset classes, except Taxable Bond and Municipal Bond, were hit by investor withdrawals. Equity mutual funds bled $294.9 billion with $234.6 billion flowing out of U.S. Equity. Mutual funds have apparently lost their appeal. On the other hand, ETFs gathered $276.0 billion with International Equity being the only asset class with negative YTD sales. Equity ETFs attracted $67.6 billion with $46.1 billion flowing into U.S. Equity. While the sales figures show that investors are embracing ETFs and deserting mutual funds, not all assets leaving mutual funds went into ETFs. YTD flows of $866.7 billion into money market funds indicate that people are treating them as a parking place for cash. Meanwhile, the rise in the use of fintech apps suggests many young people are trying their hand at stock trading.
2) Fidelity Continues to Push Investment Frontier with Expansion of Factor ETF Lineup
Fidelity | 9/17/2020
Because… As of the end of June 2020, assets in smart beta ETFs declined 9.3% from year-end 2019, compared with asset increase of 0.7% for traditional market cap-based ETFs and 19.2% for actively managed ETFs. Their one-year growth of 1.1% was also much slower than 11.4% and 44.3% for the other two groups. Multifactor, the second largest smart beta ETF group, had assets of $75.9 billion at the end of August. Multifactor ETFs experienced net redemptions of $5.4 billion this year through August after pulling in $10.0 billion in 2019 and $15.3 billion in 2018. The sales decline of Multifactor ETFs seems consistent with investors’ reduced enthusiasm for smart beta ETFs. Whether it is a mere hiccup or a signal to suggest a long-term downward trend remains to be seen. Fidelity’s new fund will be competing with such group leaders as Principal U.S. Mega-Cap Multi-Factor Index ETF (USMC), Invesco Russell 1000 Dynamic Multifactor ETF, and John Hancock Multifactor Large Cap ETF. USMC is the largest with assets of $1.6 billion as of September 17, 2020.
3) Wall Street Struggles to Keep Up in China Mutual Fund Boom
Bloomberg | 9/17/2020
Because… China’s large market seems very appealing to foreign asset managers. Deloitte estimated last November that retail assets in Chinese public funds could nearly double to US$3.4 trillion in the base case by the end of 2023. Since the projection was made last year before the pandemic, we believe it needs a revision. But it still gives us a rough idea of how large the Chinese fund industry can potentially grow to. However, bringing in Chinese investors is not easy. It requires a deep understanding of local culture and local investor preferences. Since investors in the country typically have a trading mentality instead of being long-term fund shareholders, funds run by foreign-based asset managers must generate higher returns consistently in order to attract local investors. Besides, investors generally lack knowledge about foreign investment companies. They tend to trust local firms more, making it hard for foreign companies to leverage their brand equity. Therefore, it is vital to identify reputable distribution partners and place products on their established platforms to gain more visibility.