As expectations point to optimism for the world's largest economy, most fund companies and managers are setting their business plans accordingly.
With the calendar year nearing its close, Northern Trust's third-quarter survey of 100 investment managers, published this month, found that 86% of managers felt job growth will remain stable or accelerate, 71% agreed that housing prices could rise in the next six months and 89% reported corporate profits would remain stable or increase in the fourth quarter.
"We're not expecting a hugely bullish economy here, but we also felt that the responses were very much in line with the past few quarters, which is slow and steady growth with the U.S. economy and continued resilience," said Christopher Vella, chief investment officer for multi-manager solutions at Northern Trust. "So the fundamental tenets of supporting the economy - earnings, corporates, job grwth and housing prices - all remained in a territory that we would define as very positive."
One Sarasota, Fla.-based wealth management firm with more than $2.3 billion in assets under management shares a similar sentiment. Christian Bertelsen, chief investment officer at Global Financial Private Capital, said investors should look forward to the corporate earnings season as it approaches.
Despite these positives from the survey's broad mix of U.S., Canadian and overseas asset managers-50% of which were equity shops-uncertainty facing interest rates and the overall bond market continue. According to the results, about 63% felt U.S. interest rates would rise if the Federal Reserve decided to taper its quantitative easing program by year-end. Also, about 42% of the managers felt rates could rise as high as 100 basis points from current levels.
But as advisors and managers worry over actions from the nation's central bank, Bertelsen, a 40-year veteran, explained that Global Financial Private Capital has kept an eye on the zero interest rate environment for its more than 15,000 significant net-worth clients.
"Your average retirement-age investor has been invested in bonds during its 30-year rally, but low bond yields are coming at a time when they need income most," Bertelsen said.
Status quo for fund companies?
As investors shift their capital market focus away from bonds, Chicago-based Northern Trust said it has been adapting to the current economic situation like others in the space.
With over $5 trillion in assets under custody, the 124-year-old manager and custody giant views a substantial portion of the global economy through its clients' activities. Of its nearly $803 billion in assets under management, $202 billion are assets from personal clients as of June 30.
"We're not going to be any different than any of the managers out there," Vella stated. "All the fixed-income managers are closely watching debt instruments, and making sure that they understand any particular risks."
Similarly, Vanguard, based in Valley Forge, Pa., is maintaining its status quo when implementing its strategies for marketing and operations. With 160 U.S-based funds and 100 funds in international markets, Vanguard has $2.3 trillion in U.S. mutual funds with $300 billion of its total assets attributed to its ETF fund offering, according to the firm.
"We're not doing anything different than normal-our cash flows continue to remain strong, a result, we believe, of investors attracted to our low-cost, high-value funds and our emphasis on investor advocacy," a Vanguard spokesperson said.
In September, Morningstar indicated Vanguard's Institutional Index (VINIX) and Total Bond Market II Index (VTBIX) were among top-flowing funds for the month, with about $3.6 million and $1.5 million in in-flows, respectively. The U.S. mutual fund estimate report stated that the institutional index's total assets were $146.9 billion and $66.7 billion were invested in the bond index.
Of comparable market size, Fidelity Investments-with $1.5 trillion in mutual funds as of June 30-said it has taken steps to improve and expand its mutual fund offering to customers in 2013.
According to Rob Beauregard, director of public relations for the Boston-based firm, these enhancements include:
* Increasing the total number of No Transaction Fee funds it offers "from 1,600+ up to 2,800+."
* Creating Mutual Fund Center, Mutual Fund Evaluator and Mutual Fund Library pages on Fidelity.com to help upgrade its digital presence. Beauregard states that this includes "more information, better tools, and more simplicity than ever before in helping customers narrow down the field of 10,000+ mutual funds available from Fidelity and hundreds of other fund companies."
* Bolstering educational events and expanding its "Fund Picks from Fidelity" list.
* Fidelity also continues to offer a "stream of customer communications and thought leadership to explain the proposed regulatory changes for money market funds."
But as clients are bombarded with loads of investment information and interaction, what can fund companies do to differentiate themselves from one another? Invesco Senior Vice President and Head of Brand Marketing David Nardecchia said avoiding information overload is key in communication with investors in the current economy.
"There is no shortage of information that investors can access about the markets," Nardecchia said. (As of Sept. 30, the Atlanta-based firm had over $745.5 billion in assets under management.)
Nardecchia further explained that its Invesco Interactive webcast (invesco.com/interactive) helps to soothe client skepticism by providing viewers the opportunity to interact during the live event by submitting questions and answering polls.
Most recently, Invesco Chief Economist John Greenwood and U.S. Core Equity Chief Investment Officer Ron Sloan, were featured; they discussed expectations as "the U.S. attempts to transition from a stimulus-driven market to an earnings-driven market," Nardecchia said.