Variable annuity net new sales are expected to surge in the coming years after taking a dive in 2012, according to research firm Cerulli Associates. Here is a recap of the news impacting mutual fund and ETF managers and providers.
INDUSTRY HIGHLIGHTS
ETP Flows Surged in February
Global ETP finished February at $27.2B spurred on by Janet Yellen's February 11 address to Congress, which was well received by equity markets, according to BlackRock.
The company also states that fixed income flows of $19.6B set a new monthly record amid expectations for continued low interest rates and low inflation. U.S Treasures brought in $11.4B and Investment Grade Corporate gathered $3.6B, says BlackRock.
Outflows for ETPs in January
After a strong year in 2013, investors pulled billions of dollars out of global ETPs in January, according to S&P Capital IQ. The group believes that the change occurred because of investors acting on their concerns about emerging markets and U.S. valuations and earnings.
A recent report from Blackrock shows that these concerns also led to stock market declines worldwide in January. However, S&P Capital IQ states that other areas of the equity ETP landscape, such as European and Japanese exposures continued to benefit from healthy investor appetite.
Emerging markets equity ETP outflows reaches $10B in January, the largest monthly outflows on record, driven primarily by weak Chinese manufacturing data and the continuation of Federal Reser tapering, according to Backrock.
Global Conflict Leads to Market Rebound
The conflict in the Ukraine sent global markets down but assets rebounded sharply in the first week of March after Russian President Vladimir Putin said he would use force only as last resort. Stateside Federal Reserve Chair Janet Yellen said the unusually harsh winter appeared to be behind recent weakness in the U.S. economy, according to Lipper.
Against this backdrop, equity mutual fund investors held steady and accounted for $2.8B in net inflows into equity process, Lipper states. The company also noted that ETFs were epically active during this week, posting a net $7.6B, marking the second highest weekly total this year.
More Volatility in Chinese Currency
China has recently demonstrated a willingness to let the value of its currency decline, contrary to the long-held belief that buying the renminbi was effectively a "one-way trade, according to Fran Rodilosso, fixed income portfolio manager for Market Vector ETFs.
Rodilosso points out that China is now fighting many battles at once, trying to control the declaration of growth while also discouraging hot money flows and excessive credit creation.
"The perception in the market has been that the renminbi could only appreciate in value," says Rodilosso. "It looks now as if the Chinese have set out to dispel that belief with the People's Bank of China likely to allow the currency to trade in a wider band, with more latitude to move to the downside."
A cheaper currency is a mixed blessing, according to Rodilosso who explains that it becomes cheaper to repay debt denominated in that currency but the holder of the dollar debt of Chinese issuers might have greater reason to be concerned from a credit perspective.
RESEARCH
Variable Annuity Sales to Reach $22B by 2018
Variable annuity net new sales are expected to surge in the coming years after taking a dive in 2012, according to research firm Cerulli Associates.
So far, progress has been marginal, but Cerulli believes things are going to change. . Variable net new sales will reach $22 billion by 2018, an increase from 2012 by 57%, according to a report released by the Cerulli. The company points to new product development and reinvestment among insurers in other business lines as the main causes of expected growth.
"Net new variable annuity sales plummeted in 2012 to just $14 billion," says Donnie Ethier, associate director at Cerulli in a press release. "However, as interest rates stabilize, we envision legacy variable annuity providers and new entrants, including nontraditional players, to join the marketplace."
Increased Gains for VC and PE
Venture capital and private equity industry returns data through the end of Q3 2013 both showed increased gains, according to Cambridge Associates. The company states that VC pooled end-to-end returns hit 15.1% for the one year mark, 14.38% for 3-years, 7.51% for 5-years and 8.58% for 10-years. PE pooled end-to-end returns were 17.19% for the one-year mark, 15/66% for 3-year, 10.95% for 5-year and 14.21% for 10-year, Cambridge Associates states.
Target-Date Fund Gains Participants
More than half of the participants in 401(k) retirement plans at Vanguard now hold a target-date fund, Vanguard states. This gives the recipient a disciplined approach to investment risk-taking that atomically grows more conservative as they age and prevents extremes in asset allocation, according to Vanguard.
The company points to research from its report Target-Date Fund Adoption in 2013, which states that 86% of 401(k) and other defined contribution plans at Vanguard offered a target-date fund (TDF), and 55% of all participants held a position in TDFs.
"Target-date funds continue to reshape investment patterns in DC plans in fundamental ways. These funds provide appropriate levels of risk as a participant ages and a remedy to the problem of extreme asset allocations," says Jean Young, author of the report and a senior analyst in Vanguard's Center for Retirement Research. "For these reasons, we expect the adoption of TDFs to continue in the coming years."
ARRIVALS
New Leadership at Fidelity Investments
Nancy D. Prior has been announced as the president of Fidelity Investments' fixed income division and vice chairman of Pyramis Global Advisors, Fidelity states. According to the company, Prior most recently served as president of Money Markets and Short Duration bonds. She succeeds Charles Morrison, who was appointed president of Asset Management in February 2014.
"A 12-year Fidelity veteran, Nancy has proven herself to be an exceptional leader," Morrison says. "As a member of the fixed income senior leadership team for the past three years, Nancy has skillfully managed our money market business through one of the most challenging market environments in recent memory, all while balancing the demand s and needs of our clients."
New Director of Alternative Funds Research
Josh Charlson has been named director of alternative funds research for Morningstar, the company states. In this role, he leads a team of alternative investment research analysts and serves as editor of the quarterly newsletter, Alternative Investment Observer, according to Morningstar.
Prior to this role, Morningstar states, Carlson was a strategist for the fund-of-funds research team where he oversaw Morningstar's annual Target-Date Series Research white papers as well as its quarterly targeted-date series reports and ratings and covered a number of risk parity, target-date, and another fund-of funds strategies.
STATISTICS
8 in 10 funds given five stars by Morningstar in 2002 lived to 2012.
Source: Advisor Partners
3.38% average loss for mutual funds in their final 18 months.
Source: Vanguard
