From investors scrambling out of ETFs to regulations prompting managers to change distribution strategies, here's top news impacting mutual fund and ETF managers and providers.
Regulation Prompts Managers to Change Distribution Strategy
As self-direction becomes more widespread among retail investors, performance will be evaluated in comparison with other managers' products, rather than with a benchmark, according to research by Cerulli Associates.
Flows will depend more on quartile ranking in a more competitive and equitable market.
A total of 70% of respondents to a Cerulli Associates survey of asset managers are allocating more resources to fund selectors. A couple of foreign managers with high-performing products that have established themselves in the United Kingdom told Cerulli that they have increased their sales targets as a result of the Retail Distribution Review (RDR).
More than half of those surveyed are also drilling down on discretionary fund managers and offering preferential terms to boost sales. Managers are also slowly beginning to appreciate the potential of direct-to-consumer networks as one in five respondents stated that they are putting more emphasis on them.
EDHEC-Risk's European ETF Survey Highlights ETF Investors' Positive Outlook
Satisfaction has remained at high levels across most asset classes. There have been increases in satisfaction for corporate bond, commodity, real estate and sector ETFs, but satisfaction rates for ETFs based on the most liquid ETF asset classes are far more consistent compared to those based on illiquid asset classes. Meanwhile, more than a quarter (28%) of respondents already use products tracking "smart beta" indices and more than an additional one-third of respondents (36%) are considering investing in such products in the near future.
The survey also highlighted that despite the past growth and increasing maturity of the ETF market, ETF investors are still looking to increase or at least to maintain their use of ETFs and have a more favourable outlook for their use of ETFs than for their use of alternative indexing products.
Investors Scramble Out of ETFs
After a seemingly good start to the year for ETFs, investors pulled $10.3 billion in March, the biggest exodus since December 2010, according to data compiled by Bloomberg. Following March 19th, when Janet Yellen said that a strengthening U.S. economy may prompt the central bank to lift its benchmark rate six months after it stops buying bonds, ETF investors are shifting money into riskier assets such as junk loans and small-cap stocks to capture greater returns.
"When the market thinks the Fed is going to raise rates, they don't tend to stick around in short-dated bonds," says Thomas Higgins, global macro strategist at Standish Mellon Asset Management Co. "With the Fed signaling rate hikes and the economy slowly but steadily humming along there is less and less value in Treasuries."
Limitations of Being Unconstrained
Tapering of monthly bond purchases by the Fed, and expected interest rate hikes has caused more and more investors to put their money into flexible and unconstrained bond funds, according to the March edition of The Cerulli Edge - European Monthly Product Trends.
"Investors shifted into these so-called 'go anywhere' bond funds, which are able to invest in a wide variety of fixed-income products, including junk bonds. They also have more tools to navigate the current bond environment, including bets that pay off when interest rates rise," says Barbara Wall, Cerulli's Europe research director. However, heavy outflows at PIMCO's flagship flexible bond fund and high cash holdings in other funds suggest the best opportunities have passed, and asset managers are waiting for a market correction, warns Cerulli.
ETF Strategies to Give Advisor Flexibility
SEI has launched a set of new tax-managed ETF strategies designed to give clients exposure to five strategies that span a broad risk-return spectrum, according to the company. SEI also says that the ETF strategies will give advisors the flexibility to better manage the impact of taxes while seeking to maintain the expected risk-return characteristics of a client's portfolio.
"Clients are demanding more low cost solutions that will not only address their specific investment goals but also help offset the current increase in taxes," says Kevin Cowe, head of product development for the SEI Advisor Network. "We've developed a unique set of strategies that are designed to maintain the characteristics of their individual portfolios while lowering the cost and improving tax efficiency."
iShares Launches Five New ETFs
iShares is bringing to market five new ETFs, including a pair of currency-hedged ETFs.
Both the iShares Currency Hedged MSCI Emerging Markets ETF and the iShares Currency Hedged MSCI EMU ETF will track their respective MSCI indexes. In addition, the proposed iShares Dividend Growth ETF will track the Morningstar U.S. Dividend Growth Index, which is composed of U.S. equities with a history of consistently growing dividends.
New Funds at Mertiage Portfolio Management
Three new equity mutual funds have been launched by Meritage Portfolio Management that follow the same proprietary investment process the firm developed, according to Meritage Portfolio Management. The firm says that the three funds are Meritage Value Equity Fund (MPVEX/MVEBX), Meritage Growth Equity Fund (MPGEX, MPGIX) and the Meritage Yield-Focus Equity Fund (MPYEX/MPYIX).
"We believe that the Meritage advantage comes from the combination of our team's breadth of investment experience and our robust quantitative research and ranking process," says Mark Eveans, Meritage president and CIO. "Our discipline begins with a highly evolved quantitative process - our comprehensive research that follows results in high conviction in our holdings."
Aristotle Capital Management Announces Launch of Aristotle International Equity Fund
Aristotle Capital Management, a registered investment adviser under the Investment Advisers Act of 1940 with over $7.2 billion in assets under management as of March 31, has announced the launch of the Aristotle International Equity Fund. The objective of the fund is to seek long-term capital appreciation. Under normal circumstances, the fund will invest at least 80% of its net assets in publicly traded equity securities or depository receipts of companies organized, headquartered or doing a substantial amount of business outside of the United States. The institutional, no-load share class will trade under the symbol ARSFX.
Money Flowing Into Closed-End Funds Remained Steady in 2013
Money flowing into closed-end funds remained steady from 2012 to 2013, after three previous years of steady increases, according to a new research paper "The Closed-End Fund Market, 2013" from the Investment Company Institute (ICI). The study shows net issuance of closed-end fund shares was $10.1 billion for 2013, slightly less than the $10.5 billion in 2012, but significantly higher than the $6.0 billion in 2011 and $5.5 billion in 2010. Total closed-end fund assets were $279 billion at year-end 2013. Further, the market share of equity closed-end fund assets rose from 25 percent of total closed-end fund assets at year-end 2003 to 41 percent at year-end 2013 spurred by two related factors - investors' attraction to equity closed-end funds, and gains in equity prices which boosted the value of equity assets in closed-end funds.
$10.1B net issuance of closed-end fund shares for 2013, slightly less than the $10.5 billion in 2012.
Source: Investment Company Institute
28% of European ETF investors use products tracking "smart beta" indices.
Source: EDHEC-Risk's annual European ETF Survey