The global fund industry continues to grow at a robust pace - absorbing $1 trillion of net inflows annually - even as it adapts to enormous changes in regulation, investment management, distribution, advice provision, pricing, marketing and technology.
The bulk of new money though is going to actively managed funds, which accounted for nearly 60% of global inflows in 2013. Moreover, three-quarters of the inflow to actively managed funds was raised outside the U.S., underscoring the importance of operating truly global businesses. For example, more than 60% of the flows to JP Morgan, BlackRock and Franklin Templeton were sourced internationally.
Concentration and Diversity at the Top
A large proportion of money still goes to a few leading houses. The top 15 active mutual fund managers attracted $300 billion of net flows globally last year, more than half of the worldwide total into actively managed funds, as published in Strategic Insight's State of the Global Fund Industry study.
Flows to JP Morgan Asset Management ranked first in the world, eclipsing $61 billion and nearly double the amount in the prior year. Five other managers headquartered in the U.S. - BlackRock, Dimensional Fund Advisors, MFS, Goldman Sachs and Franklin Templeton - each captured over $20 billion through actively managed funds globally. Diversity nonetheless was evident among the leaders, which included global financial giants, local investment providers, mid-sized and boutique specialists, multi-affiliates, third-party independents and in-house investment units of distributors.
Much of the success of top-ranked JP Morgan Asset Management last year was driven by income themes, especially income alternatives that are less correlated with traditional long-only fixed income. The group's five best selling funds outside the U.S. - and four out of the top five best selling funds in the U.S. - were all income products.
Rotations Into Equity Funds and Multi-Asset Solutions
In addition to sustained demand for income solutions, the rotations last year into equity funds, multi-asset vehicles, and alternative investment strategies supported the growth of many companies. Equity funds worldwide absorbed $610 billion on a net basis, slightly higher than the peaks in 2006 and 2007. Advisers and investors also looked to more sophisticated volatility-managed solutions, helping mixed asset funds - including nontraditional absolute return multi-asset products - to achieve $144 billion of net inflows outside the U.S.
Liquid Alternatives and Non-traditional Strategies Also Expand
Including hedge style liquid alternatives, non-traditional strategies captured more than $250 billion of net flows around the world during 2013. These volumes will likely rise further as investors adjust allocations away from long-only bond risks while seeking to limit exposure to stock market drawdowns.
The demand for non-correlated lower volatility alternatives is supporting innovation and growth in a variety of sectors, including hedge style strategies in mutual funds and UCITS, hybrid absolute return, institutional diversified growth funds, risk-managed solutions and smart beta alternative indexing approaches. Such innovations have dramatically transformed the global fund industry... but even more will be seen in coming years as investment needs, markets, regulation, distribution and advice continue to evolve.
Jag Alexeyev is senior managing director and head of global research at Strategic Insight.