There's a new world order coming in mutual funds. And a new form of wholesaler - colloquially called a "schmeek" - will be helping financial advisers understand its new complexity and sell a constantly evolving kaleidoscope of new products to individual investors.
In every calendar year for the last decade, economic growth in the rest of the world has been stronger than in the United States, according to George Gatch, the chief executive officer of J.P. Morgan Funds. Leading the way: Developing countries such as China and Brazil.
Investment returns have followed suit.
In fact, in the last 10 years, the cumulative return of the Standard & Poor's 500 stock index was 15 percent. By contrast, the cumulative return of the MSCI Emerging Markets Index was 350 percent, Gatch told attendees of the 2011 General Membership Meeting of the Investment Company Institute.
"Clearly, globalization presents big opportunities for our shareholders,'' he said.
This is clearly "one of the big megatrends" in the industry for the next two decades, said William F. Glavin Jr., chairman, president and chief executive of OppenheimerFunds.
"Growth is likely to be stronger outside the U.S.,'' he said, and "what you're seeing is this breakdown of geographic barriers.
"It's hard to tell what companies are, anymore,'' as firms worth investing in are themselves becoming more global, he said. It's hard to tell "whether they are a U.S.-based company but most of their revenues are coming from developing markets or they are a U.K. company listed in the U.S. What do you call that?"
The objective becomes finding the best companies anywhere in the world that are going to take advantage of growth anywhere in the world. Which leads to what Glavin calls the "style box issue."
If, for instance, you ran a domestic equity fund, needed to invest in the automobile industry and were limited to investing in U.S.-based companies, "you would have owned the wrong three companies over the last decade,'' he said.
Another impediment, Glavin said, is "home market bias." This is the tendency of investors, pretty much worldwide, to overinvest in companies from their own country. That makes it difficult for funds to go after finding a firm in, say, Vietnam, that is in the incipient stages of building a significant global business - which might actually get its start supplying products to the United States.
Investors tend to put 20 percent or less of their money explicitly in international funds, he said.
Much of the 350 percent return generated by the MSCI Emerging Markets Index has been export-driven with large companies given way to focused small- and medium-sized entrepreneurial companies, said Richard P. O'Hanley, president of asset management and corporate services for Fidelity Investments.
Roughly 20 times as many stock offerings for new public companies are happening outside the United States now, as inside the U.S., O'Hanley said.
That's going to mean a need for more research on more companies in more locales. Which will, in turn, mean "probably more presence on the ground to actually be able pull that off and to find those companies that are just going to be less obvious than some of the big large-cap, formerly state-owned enterprises that have powered some of the returns in the past,'' O'Hanley said. "So, for us, it's all about just putting more researchers on the ground."
FMR, the parent company of Fidelity, he noted, has about 70 analysts outside the United States. The "vast majority" of those are focused on finding promising investments in emerging markets.
By contrast, Oppenheimer has no analysts outside the United States, even though it has been pursuing investments abroad for four decades. All the analysts are in New York, where its investment operation is based.
That operation is "adamantly opposed" to putting analysts in local offices. Their view is if you put someone in a region, "they will become too regionally focused,'' rather than looking at an industry globally, he said.
"If I end up in the market, I am going to get attached to the market," he said. "I'm going to have an analyst just telling me about good mineral companies in Asia. And I really need someone that is telling me about the best mineral companies worldwide."
As a result, the head of Oppenheimer's emerging markets fund is on the road about six months a year. So Oppenheimer does have feet in the streets, as needed.
The question of having feet in the street permanently or temporarily, as needed, turns on a different operational question, beside simply finding the best investments to make, said James I. Robertson, senior managing director and chief executive officer of Invesco Perpetual (U.K.).
"I think part of it is are you just looking to invest money globally or are you trying to service clients globally?," he said. If you're trying to do both, the answer is different.
"The way we look at things is to try and be more local than our global competition when it comes to interacting with our clients and more global than our local competition when it comes to offering investment solutions and investment advice."
It's hard to provide proper client service remotely, Robertson said. "I would think that would be difficult to do that on a fly-in basis."
Also part of the new world order, these fund executives said, is the development of "go anywhere funds.''
These mandates are good for investors, who want portfolio managers to move out of real estate, when real estate markets crumble, and into other kinds of assets, parts of the world or even cash.
This wasn't the case, before September 2008 when the subprime mortgage market imploded and the financial crisis spread worldwide.
Net assets in of the U.S. mutual fund industry fell from $12.0 trillion at the end of 2007, to $9.6 trillion at the end of 2008. The total went back up to $11.8 trillion, by the end of 2010.
Now, funds are investing not just in real estate, but gold and commodities, as well.
Which means that Oppenheimer is now sending out "schmeeks" to explain the intricacies of new products its introduces.
In the past, the firm's wholesalers might hand out golf balls and logo shirts, to get adoption of products with the financial advisers who would in turn sell them to retail investors.
They now send out "schmoozing geeks," aka "schmeeks,'' instead.
These are individuals who can strike up relationships, but also can be smart about capital markets, first, then categories of products and then Oppenheimer Funds' products, in those categories.
"It's much more of a data analysis and communications" role now, he said. Not purely relationships.
"The whole game is getting raised now,'' he said, as products get more esoteric. "It's not about who you know and who you played golf with last week.''