Momentum in U.S. mutual fund product development is being driven in large part from managers looking abroad.
U.S. mutual fund launches nearly tripled in 2013 compared to 2012 with help from an increased focus on international strategies, according to new research from Cerulli Associates. Nineteen percent of asset managers surveyed by the Boston-based research firm indicated plans to launch new retail platforms concentrated in international stocks. Only alternatives (26%) scored higher among asset classes that fund managers are focusing on in 2014 for the retail channel with U.S. stocks also registering 19%.
"There was an increase in the number of launches in international strategies, including global equity, emerging markets equity, and bond strategies," Cerulli Associates Associate Director Pamela DeBolt said. "We have seen an increase in development, across stock, bond and international asset classes."
'ONE BIG SWITCH'
Chuck Thompson, head of U.S. mutual funds for London-based Henderson Global Investors, says a move last June by the European Central Bank to make its bond-buying program unlimited combined with improved economic conditions in Europe helped make global investing more attractive for fund managers across the pond.
Thompson pointed to July 1, 2013, as a date where inflows began to penetrate U.S. funds with international strategies and attributes this as a major reason in the large number of new product launches the second half of the year.
"It was as if the whole world decided that Europe was so cheap and we might as well start buying," says Thompson. "It was like one big switch."
Henderson launched two new products with international strategies last year in the Henderson High Yield Opportunities Fund and Henderson Unconstrained Bond Fund. Two additional launches are slated for 2014 including an International Growth Fund planned for June and another fund for later in the year.
"People's appetite for global exposure is growing," says Carter Sims, Schroder Investment Management's head of intermediary distribution in North America. "There has been a rapid expansion and a lot of development in international products."
Schroder also launched two funds last year with international strategies including the Schroder Emerging Markets Multi-Cap Equity Fund and the Schroder Emerging Markets Multi-Sector Bond Fund.
DEMAND AT DISTRIBUTION LEVEL
New U.S. fund product launches incorporating international exposure are also being seen at the distribution level. Jon Poyer, distribution manager of Omaha, Neb.-based Northern Lights Distributors, says the vast majority of his roughly 300 fund manager clients have taken steps to increase international stocks and bonds into their offerings. "Just about every home office I'm in there is a proactive search for international platforms," says Poyer. "This is a trend I see continuing."
Henderson's distribution strategy for its international and global offerings includes 18 external sales and 18 internal sales staffers who sell mainly through broker-dealers at wirehouse firms Morgan Stanley, UBS and Merrill Lynch. Thompson says registered investment advisors are also growing and now comprise 25% of its distribution business compared to 5% three years ago.
When Sims joined Schroder Investment Management North America in 2006 there was a sub-advisory strategy, but in recent years the firm has expanded its sales force and now has 40 on the intermediary side and distributes on a global level. Schroder's distribution strategy for its international platforms has also been aided by its 2012 acquisition of a 25% share in India's largest asset manager, Axis Asset Management, enabling an ability to distribute productions in the large Asian nation.
"We are on a calculated growth strategy." says Sims.
MARKETING INTERNATIONAL PRODUCTS
As the number of fund products increases, so does marketing efforts.
Henderson has been utilizing microsites for its new international-oriented funds as well as publicizing the offerings on social media. The firm also developed an app for advisors that features short videos from portfolio managers explaining the funds.
"It's much more of a content video delivery," says Thompson of the app. "It has been very successful."
Schroder initially had very limited public relations for its U.S.-based international funds but that is changing in 2014. Sims says the company is planning to run more ads in print and digital media as well as penning commentaries starting in April.
Thompson expects the rise of funds with international products to continue, but pointed out how the process takes plenty of teamwork between a company's investment management, legal counsel, marketing and sales divisions.
"It takes very tight coordination to develop a product," says Thompson. "It takes a tight well-oiled machine."