1) American Century Plays Catch-Up to Win $4.6 Trillion ETF Market Bloomberg | 2/18/2020
Because… Given BlackRock and Vanguard collectively controlled 65% of ETF assets and 67% of 2019 net flows, it is tough for latecomers to play catch-up. Based on FUSE analysis, the compound annual growth rate (CAGR) of actively managed ETFs was 49% from 2016 to 2019, which was the highest among all ETF types (admittedly starting from a small asset base). With the SEC approval for non-transparent ETFs, a wave of active ETFs will likely hit the market in 2020. We are doubtful that net flows will follow in 2020 since distributors are waiting to see how the different approaches will trade before committing. First-mover advantage may be more of a superficial phenomenon. For example, when Grail Advisors introduced the industry’s first actively managed ETFs in 2009 and Eaton Vance introduced the first exchange-traded managed fund in 2016, they caused quite a stir in the marketplace. Unfortunately they failed to be the Holy Grail for asset managers. Time will tell if this latest attempt is more hype or revolutionary in the ETF evolution.
2) Secure Retirement Institute: 2019 Total Annuity Sales Reach Highest Levels Since 2008 LIMRA | 2/18/2020
Because… LIMRA reports that variable annuity (VA) sales of $101.9 billion in 2019 represented an increase of 2% from a year ago. The positive growth for two consecutive years is particularly encouraging after annual VA sales fell below $100 billion in 2017 for the first time in almost 20 years. The SECURE Act, which was enacted into law last year, updates the safe harbor provision to protect employers from liability if they select an annuity provider that meets certain requirements. While we do not foresee a significant uptake of in-plan annuities, we hope the new legislation can encourage employers to add annuity options to provide their employees with a lifetime income stream.
3) Franklin Templeton to Acquire Legg Mason, Creating $1.5 Trillion AUM Global Investment Manager Franklin Templeton | 2/18/2020
Because… Franklin Templeton’s $4.5 billion purchase of Legg Mason shows again asset management firms’ hunger for scale. There have been quite a few large scale mergers and acquisitions in the past few years, such as the Janus-Henderson merger, Amundi’s buyout of Pioneer, and Invesco’s acquisition of OppenheimerFunds. With the race to lower costs, sales concentration among leading industry players, margin squeeze from the investor shift to passive investing, and the need to expand investment capabilities to accommodate different types of investors, we expect the trend of consolidations to continue going forward. Data from Refinitiv found that nearly 200 deals took place last year within the U.S. asset management industry, the most since at least 2000. Also, PwC projected recently that 20% of mutual fund asset managers will be acquired or eliminated by 2025.